Two Otherwise Equal Companies Have Significantly Different Dividend Payout Ratios

question 58

Multiple Choice

Two otherwise equal companies have significantly different dividend payout ratios. Which of the following statements is most likely to be correct? The company with higher the dividend payout ratio:

• A) will have a higher inventory turnover ratio.
• B) will have a lower inventory turnover ratio.
• C) will have higher earnings growth.
• D) will have lower earnings growth.

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Definitions:

Investment Banks

Financial institutions that assist individuals, corporations, and governments in raising capital by underwriting and/or acting as the client's agent in securities issuance.

Tax Deductibility

Refers to the ability to subtract an expense from one's taxable income, thereby reducing the overall tax liability.

Equity Loans

These are loans where the borrowed amount is secured by the borrower's equity in their property, typically a home.

Household Debt

The total amount of money that all members of a household owe to outside parties, including mortgages, credit cards, and loans.