The answers assume all things are held constant other than the item in question.

a. Low payout ratio. Highly taxed owners probably will want to realize their returns through capital gains.

b. Low payout ratio. There will be no residual funds.

c. Medium or high payout ratio. There are likely to be funds left over af- WL, ter funding capital expenditures. Moreover, the liquidity and access to borrowing give the company considerable flexibility.

d. Medium or high payout ratio. Unless the company cuts its dividend, which probably is unlikely in the short run, its payout ratio will rise with the drop in earnings.

e. Low payout ratio. The company will probably wish to retain earnings to build its financial strength in order to offset the high business risk.