Question

f a firm follows a stable dividend policy while its earnings are growing and no new...

f a firm follows a stable dividend policy while its earnings are growing and no new stock has been issued, what would happen to the firm’s dividend payout ratio over time?

a.

The payout ratio will decrease.
b.

The payout ratio will increase.
c.

The payout ratio will decrease initially and then increase.
d.

The payout ratio will remain stable and not change.
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

> Payout ratio can be defined using the below formula

Payout ratio = Dividend Per Share / Earnings Per Share

> If a firm follows a stable dividend policy while its earnings are growing and no new stock has been issued, Then payout ratio will decrease over time

> Dividend per share (Numerator) in the above equation is constant but Earnings per share (Denominator) is increasing hence the result value would be decresed as a result

> Payout ratio is inversely proportional to Earnings per share keeping dividend per share constant. If Eanings per share is increasing then payout ratio will decrease

> If Earnings per share decrease then payout ratio will increase

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A firm with uncertain earnings that has adopted a constant dividend payout policy will most likely...
A firm with uncertain earnings that has adopted a constant dividend payout policy will most likely have a stable dividend payout ratio, but unstable dollar dividends, over time. True or false
New Stock Ltd indicated its dividend payout policy in its latest general shareholder meeting that it...
New Stock Ltd indicated its dividend payout policy in its latest general shareholder meeting that it will maintain a stable dividend payout ratio. Its net income is expected to enter a high growth window with the annual growth rate of 5% per annum in the next three years. You forecast that New Stock Ltd will enter a stable terminal growth stage with its net income growing at the industry growth rate of 2% per annum following the high growth window....
Conifers Ltd, a tree relocation company, follows a stable plus special dividend policy. The company recently...
Conifers Ltd, a tree relocation company, follows a stable plus special dividend policy. The company recently (2020) had earnings available to common shareholders of R500m on sales of R2b and has 250m shares outstanding. The company maintains a stable pay-out ratio of 5% and issues special dividends whenever its net profit margin exceeds 10%. Special dividends amount to all profits exceeding 50% of the amount after the stable dividend had been deducted. Required: Determine the total dividend that Conifers Ltd...
Infrared Geological Technologies (IGT) has been using the residual dividend policy in the past to determine...
Infrared Geological Technologies (IGT) has been using the residual dividend policy in the past to determine its per share dividend. The firm’s management has decided that it will now change this dividend policy. The new policy will be a much lower dividend per share than last year of only $1.00. However, if the firm has considerable excess cash, the firm will consider paying a one-time extraordinary dividend or repurchasing stock. You have been retained by the firm to write the...
Crane Sporting Goods expect to have earnings per share of $6 in the coming year. Rather...
Crane Sporting Goods expect to have earnings per share of $6 in the coming year. Rather than reinvest these earnings and grow, the firm plans to pay out all of its earnings as a dividend. With the expectation of zero growth in dividend, the firm's current share price is $60. Suppose the firm plans to cut its dividend payout rate to 75% for the forseeable future and use the retained earnings to open new stores. The return on equity for...
Consider a growing firm that is expected to produce earnings of $10 million next year. The...
Consider a growing firm that is expected to produce earnings of $10 million next year. The firm’s earnings growth rates are 15% per annum. The firm’s cost of capital is 20%. Its tax rate is 0. 1. What is the market value of this firm? 2. What is the firm’s P/E ratio if it has no debt? 3. Now assume that the cost of capital for debt of $100 million is 8%, while the cost of capital for the remaining...
A fast-growing firm recently paid a dividend of $0.20 per share. The dividend is expected to...
A fast-growing firm recently paid a dividend of $0.20 per share. The dividend is expected to increase at a 20 percent rate for the next four years. Afterwards, a more stable 10 percent growth rate can be assumed. If an 11.5 percent discount rate is appropriate for this stock, what is its value? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Stock value $
Firm reinvests 60% of its earnings in projects with ROE of 10%, capitalization rate is 15%....
Firm reinvests 60% of its earnings in projects with ROE of 10%, capitalization rate is 15%. Expected year-end dividend is $2/share, paid out of earnings of $5/share. Calculate the dividend growth rate. Calculate the firm’s intrinsic value. Calculate the firm’s present value of growth per share. Why is the PVGO is negative? Is the current dividend policy a good choice? What could be done to increase its stock price?
A firm has followed an historical pattern of raising its dividend by 5 to 7 percent...
A firm has followed an historical pattern of raising its dividend by 5 to 7 percent every year. However, at the annual meeting held today, the Board of Directors declared a dividend increase of 12 percent. The stock price rose after the announcement because: A. Of the tax preference argument. B. It is viewed as a positive signal about the firm’s future cash flows. C. Of the M&M dividend irrelevance argument. D. The share price would not increase because investors...
​(Residual dividend policy​) ​FarmCo, Inc. follows a policy of paying out cash dividends equal to the...
​(Residual dividend policy​) ​FarmCo, Inc. follows a policy of paying out cash dividends equal to the residual amount that remains after funding 40 percent of its planned capital expenditures. The firm tries to maintain a 40 percent debt and 60 percent equity capital structure and does not plan on issuing more stock in the coming year.​ FarmCo's CFO has estimated that the firm will earn $17 million in the current year. a. If the firm maintains its target financing mix...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT