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A constant payout ratio policy ties dividend to:
ASales
BTotal assets
CEPS (a fixed % of EPS)
DCost of capital
Answer & Solution
Correct answer: C. EPS (a fixed % of EPS)
1. Constant payout = fixed percentage of earnings distributed each year.
2. DPS varies with EPS.
3. Less reliable signalling than stable policy.
_Source: ICAI BoS CA Inter Paper 6A, Ch 8 "Dividend Decisions", §4_
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