If a company increased its dividend payments what would happen to the following ratios, all other things being equal? $$\begin{array} { | l | l | l | l | }
\hline & \text { Total Debt/Equity } & \text { Times Interest Earned } & \text { Financial Leverage Ratio } \
\hline \text { A) } & \text { Same } & \text { Same } & \text { Same } \
\hline \text { B) } & \text { Increase } & \text { Same } & \text { Decrease } \
\hline \text { C) } & \text { Same } & \text { Decrease } & \text { Decrease } \
\hline \text { D) } & \text { Increase } & \text { Same } & \text { Increase } \
\hline
\end{array}$$
A) Option A
B) Option B
C) Option C
D) Option D

Question

If a company increased its dividend payments what would happen to the following ratios, all other things being equal? $$\begin{array} { | l | l | l | l | } 
\hline & \text { Total Debt/Equity } & \text { Times Interest Earned } & \text { Financial Leverage Ratio } \
\hline \text { A) } & \text { Same } & \text { Same } & \text { Same } \
\hline \text { B) } & \text { Increase } & \text { Same } & \text { Decrease } \
\hline \text { C) } & \text { Same } & \text { Decrease } & \text { Decrease } \
\hline \text { D) } & \text { Increase } & \text { Same } & \text { Increase } \
\hline
\end{array}$$
A) Option A
B) Option B
C) Option C
D) Option D

Quizplus · Accepted Answer

Increasing dividend payments reduces retained earnings, which decreases equity, thus increasing the Total Debt/Equity and Financial Leverage Ratios. Times Interest Earned remains the same as it is not directly affected by dividend payments.

If a Company Increased Its Dividend Payments What Would Happen