Mercier Industries just announced that it will increase the ﬁrm's dividend payout ratio next year by 5%. This change will:

Question

Quizplus · Accepted Answer

The dividend payout ratio is the portion of earnings paid out as dividends, while the retention ratio is the portion of earnings kept by the company for reinvestment. When the dividend payout ratio increases, the retention ratio decreases, and therefore the plowback ratio (the portion of earnings reinvested) also decreases. This will have no impact on the firm's profit margin.

Mercier Industries Just Announced That It Will Increase the ﬁRm's