Question (9) Directions: Use the information below to answer the following quest

Question

Question (9) Directions: Use the information below to answer the following question. Net profit after taxes $350 Cash dividends Which one of the following is the correct conclusion to draw from the trend in the dividend payout ratio? 20Y1 20Y2 $570 $180 20Y3 710 $260 575 The dividend payout ratio is shrinking, which means the business ill most likely need to borrow less. O The dividend payout ratio is growing, so the business will most likely need to borrow less O The dividend payout ratio is growing, which will most likely lead to increased borrowing needs OThe dividend payout ratio is shrinking, which will most Iikely result in increased borrowing needs.

Explanation / Answer

Answer

Dividend payout ratio = Dividend/ net income

20Y1= $75/350 =0.21

20Y2=$180/570 =0.32

20Y3=$260/710 =0.37

Hence, above calculation for payout ratio, the result

The dividend payout ratio is gwowing, which will most likely lead to increased borrowing needs.

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