In the percent-of-sales method
A) as the dividend payout ratio goes up, the required new funds also rise.
B) as the dividend payout ratio rises, required new funds decline.
C) the dividend payout ratio does not affect new funds.
D) None of these.

Question

Quizplus · Accepted Answer

In the percent-of-sales method, the required funds are calculated as a percentage of sales. As the dividend payout ratio (portion of earnings paid out as dividends) goes up, more funds are required to meet the company's investment and growth needs. Thus, option A is the correct choice.

In the Percent-Of-Sales Method