What Is the Maximum Dividend Payout Ratio Consistent with Not

question 24

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 50%,and an annual sales growth objective of 9%?

• A) Approximately 1%
• B) Approximately 10%
• C) Approximately 12%
• D) Approximately 20%

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Definitions:

Indirect Method

A way to present the cash flow statement where net income is adjusted for non-cash transactions, changes in working capital, and operational activities to yield cash flow from operations.

Depreciation Expense

An accounting method used to allocate the cost of a tangible or physical asset over its useful life.

Operating Activities

The primary revenue-generating activities of a business, including the production, sales, and delivery of the company's products and services.

Investing Activities

Part of a company's cash flow statement that shows the cash spent on investments in capital assets and any cash received from the sale of those assets.