Corporation A's dividend policy is to maintain a constant payout ratio.This year Corporation A paid out a total of $2 million in dividends.Next year,Corporation A's sales and earnings per share are expected to increase.Dividend payments are expected to
A) remain at $2 million.
B) increase above $2 million.
C) decrease below $2 million.
D) increase above $2 million only if the company issues additional shares of common stock.

Question

Quizplus · Accepted Answer

Since the dividend policy is to maintain a constant payout ratio, as the earnings per share increase, the dividend payments should also increase. Therefore, the dividend payments are expected to increase above $2 million.

Corporation A's Dividend Policy Is to Maintain a Constant Payout