Chapter 11, Problem 11.11BE

To determine

Payout Ratio: It refers to a measure that evaluates the amount of dividends paid to the shareholders out of the net income earned by a corporation. It is generally expressed as a percentage. The formula to calculate the payout ratio is as follows:

  $\text{Payout ratio = }\frac{\text{Cash dividend declared on common stock}}{\text{Net income}}\times 100$

the last year payout ratio of Corporation M.

To determine

the amount of dividends to be paid this year in order to maintain last year’s payout ratio.

To determine

To state: the pros and cons of maintaining a constant payout ratio.