If a Firm Follows a Stable Dividend Policy While Its

question 105

Multiple Choice

If 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.

---

Definitions:

Intuition

Gathering information through a “sixth sense” and focusing on what could be.

Analytic Thinking

The systematic examination of complex ideas, issues, or problems using logical reasoning and critical analysis to break them down into component parts.

Logical Reasoning

The process of using a structured, systematic approach to arrive at conclusions or solve problems based on valid premises.

What-if Questions

Hypothetical queries used to explore potential outcomes or scenarios, often in planning, problem-solving, and decision-making processes.