The dividend payout ratio is directly related to a firm's internal growth rate.

Question

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The dividend payout ratio is the proportion of earnings paid out to shareholders as dividends. A high dividend payout ratio means that a larger proportion of earnings is distributed to shareholders, leaving less money for the company to reinvest in growth. Therefore, a higher dividend payout ratio is likely to result in a lower internal growth rate, while a lower dividend payout ratio is likely to result in a higher internal growth rate.

The Dividend Payout Ratio Is Directly Related to a Firm's