A Sensible Payout Policy

question 66

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:

Liabilities

Liabilities that a business must settle in the future, representing the financial debts owed to external parties.

Prepaid Expenses

Costs that have been paid in advance for goods or services to be received in the future.

Unearned Revenues

Money received by a company for goods or services that have not yet been provided to the customer.

Adjusting Entries

Journal entries made in an accounting period to allocate income and expenditure to the correct periods.