Question (9) Directions: Use the information below to answer the following quest
ID: 2556906 • Letter: Q
Question
Question (9) Directions: Use the information below to answer the following question. Net profit after taxes $350 Cash dividends Which one of the following is the correct conclusion to draw from the trend in the dividend payout ratio? 20Y1 20Y2 $570 $180 20Y3 710 $260 575 The dividend payout ratio is shrinking, which means the business ill most likely need to borrow less. O The dividend payout ratio is growing, so the business will most likely need to borrow less O The dividend payout ratio is growing, which will most likely lead to increased borrowing needs OThe dividend payout ratio is shrinking, which will most Iikely result in increased borrowing needs.Explanation / Answer
Answer
Dividend payout ratio = Dividend/ net income
20Y1= $75/350 =0.21
20Y2=$180/570 =0.32
20Y3=$260/710 =0.37
Hence, above calculation for payout ratio, the result
The dividend payout ratio is gwowing, which will most likely lead to increased borrowing needs.