Question

Which of the following would be most likely to lead to a decrease in a firm's dividend payout ratio? Answer Its earnings become more stable. Its access to the capital markets increases. Its R&D efforts pay off, and it now has more high-return investment opportunities. Its accounts receivable decrease due to a change in its credit policy. Its stock price has increased over the last year by a greater percentage than the increase in the broad stock market averages.

Answer 1

Paying for R\&D of the project that has high return investment opportunity would decrease the dividend payout ratio. As the firm will be attracted to the project for its high returns and would make investments in that project instead of distributing dividends.