Which of the following would be most likely to lead to a decrease in a firm's dividend payout ratio?
A) Its access to the capital markets increases.
B) Its R&D efforts pay off, and it now has more high-return investment opportunities.
C) Its accounts receivable decrease due to a change in its credit policy.
D) Its stock price has increased over the last year by a greater percentage than the increase in the broad stock market averages.
E) Its earnings become more stable.

Question

Quizplus · Accepted Answer

If a firm's R&D efforts pay off and it has more high-return investment opportunities, it is likely that the firm will choose to reinvest its earnings in these opportunities rather than pay out dividends. This would result in a decrease in the firm's dividend payout ratio. Access to capital markets (A) and a decrease in accounts receivable (C) are not directly related to the dividend payout ratio. An increase in stock price (D) may lead to an increase in the dividend payout ratio, not a decrease. While stable earnings (E) may result in a higher dividend payout ratio, it is not the most likely choice in this scenario.

Which of the Following Would Be Most Likely to Lead