Increase in Dividend Payout Ratio - Impact on Retained Earnings Break-Point

Effect of Dividend Payout Ratio on Retained Earnings Break-Point

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Question

An increase in the dividend payout ratio ________ the retained earnings break-point.

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A. B. C. D.

A

As the dividend payout ratio is increased, the amount of earnings retained decreases, decreasing the amount of new debt that can be issued without changing the capital structure. Hence, the retained earnings breakpoint will decrease.

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