Answer (C) is correct . The prior-year dividend payout ratio was 50%. Hence, if prior-year net income was X, the total dividend payout would have been 50%X. If earnings increase by 20%, current-year income will be 120%X. If dividends increase by 15%, the total dividends paid out will be 57.5%X (115% ¡Á 50%X), and the new dividend payout ratio will be 47.9% (57.5%X ¡Â 120%X).Answer (A) is incorrect because The prior-year payout ratio is 50%.
Answer (B) is incorrect because The figure of 57.5% is 115% of the prior-year payout ratio.
Answer (D) is incorrect because The figure of 78% equals 65% of 120%.
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