What Is the Maximum Dividend Payout Ratio Consistent with Not

question 21

Multiple Choice

What is the maximum dividend payout ratio consistent with not requiring external funds for a firm with an ROE of 15%, a debt-equity ratio of 40%, and an annual sales growth objective of 9%?

• A) 1%
• B) 10%
• C) 12%
• D)16%

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Definitions:

Merger Premium

The additional cost or amount by which a company's purchase price exceeds the pre-merger valuation of the target company.

Stand-Alone Value

The intrinsic worth of an investment or project if undertaken independently, without considering synergies or external factors.

Greenmail

A strategy where a large shareholder is bribed by the target company to not take over the company by buying back their shares at a premium price.