Which circumstance would be most likely to lead to a decrease in a firm's dividend payout ratio?
A)Its earnings become more stable.
B)Its access to the capital markets increases.
C)Its R&D efforts pay off, and it now has more high-return investment opportunities.
D)Its accounts receivable decrease due to a change in its credit policy.

Question

Quizplus · Accepted Answer

If a firm's R&D efforts pay off and it now has more high-return investment opportunities available, it may choose to retain more earnings to finance these projects rather than pay them out as dividends. This can lead to a decrease in the dividend payout ratio. Option A, earnings becoming more stable, may not necessarily lead to a decrease in the dividend payout ratio. Option B, increased access to capital markets, may facilitate the payment of dividends as the firm has more sources of funding. Option D, a decrease in accounts receivable due to a change in the credit policy, is not directly related to the dividend payout ratio.

Which Circumstance Would Be Most Likely to Lead to a Decrease