Which of the following factors would most likely be present if a company increases its dividend payout ratio significantly?
A)a high debt/equity ratio (i.e.,use of a large amount of financial leverage)
B)a quick ratio that is significantly below the industry average
C)current shareholders cannot participate in a new offering and desire to maintain ownership control
D)the variability of expected future earnings decreases

Question

Quizplus · Accepted Answer

If a company increases its dividend payout ratio significantly, it indicates that the company has more confidence in its ability to generate steady and predictable earnings, which reduces the variability of expected future earnings. Therefore, option D is the most likely factor that would be present in this scenario. Options A and B are unlikely, as a high debt/equity ratio and a quick ratio that is significantly below the industry average would suggest that the company may not have enough financial resources to increase its dividend payouts. Option C is also unlikely, as current shareholders can still participate in dividend payouts even if the company issues new shares in a new offering.

Which of the Following Factors Would Most Likely Be Present