Asked by Jasmine Sarmientos on May 31, 2024
Verified
A target payout ratio policy involves choosing a ratio with which the firm is comfortable and thereafter paying exactly that percentage of earnings every year.
Target Payout Ratio
The percentage of net income that a firm aims to pay out to its shareholders as dividends.
Earnings
The amount of profit that a company produces during a specific period, indicative of its financial health and performance.
Dividend Payments
Cash or stock distributed by a company to its shareholders out of its profits or reserves.
- Recognize the limitations and flexibility in dividend payment policies.
Verified Answer
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coralie ChengJun 05, 2024
Final Answer :
False
Explanation :
A target payout ratio policy involves a firm aiming to pay a certain percentage of its earnings as dividends over time, but the actual dividends may vary year to year to smooth out the payments, rather than paying exactly that percentage every year.
Learning Objectives
- Recognize the limitations and flexibility in dividend payment policies.