Over the five-year period, what is the maximum overall payout ratio the firm could achieve without triggering a securities issue?

B2. A firm with 20,000,000 common shares has a dividend policy

Dividend policy determines the maximum payout ratio that a company can reach without having to issue securities. This ratio can be calculated in general by dividing the total amount of dividends over a period with total income for that timeframe. The ratio is used to determine how much cash or stock investors can expect from each business.

In regards to the five-year period mentioned – firms should aim to keep their payout ratios under 60% – otherwise they may need additional capital to support future dividend payments. This ratio is calculated by subtracting any operating expenses from all the profit earned (taxes, cost-of-goods sold, etc.). Additionally – certain items like depreciation or amortization are typically excluded from this calculation as well.

Ultimately – by understanding how these calculations are made – companies can better determine what level of payouts they can afford without needing to raise additional funds.