A Sensible Payout Policy

question 36

Multiple Choice

A sensible payout policy

• A)sets dividends at a level just equal to the amount of new equity that can be raised annually.
• B)sets dividends based on net income,not cash flows.
• C)consistently varies its target payout ratio on an annual basis.
• D)pays out all free cash flows over time.
• E)cuts positive NPV investments,if needed,to steadily increase its dividend.

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Definitions:

Oligopoly

Defines a market structure characterized by a small number of firms dominating the market, leading to limited competition.

Brand Loyalty

Occurs when a consumer buys the same brand’s product or service repeatedly over time rather than buying from multiple suppliers within the same category.

Demand Curve

Represents a graph showing the relationship between the price of a good and the quantity demanded by consumers at those prices, usually downward sloping.

Price Elasticity

The measure of how much the quantity demanded of a good responds to a change in the price of that good, expressed as a ratio.