Final answer:
The assertion that a decline in the dividend payout ratio necessitates more external funds is false; retained earnings can substitute external financing.
Step-by-step explanation:
The statement that 'as the dividend payout ratio declines, more external funds are required' is generally considered false. The dividend payout ratio is the fraction of net income that a firm pays out to its shareholders as dividends. The more earnings a company retains, the less it generally needs to seek external financing because it can use its retained earnings to fund investment and growth. This assumes that the retained earnings are sufficient for the company's investment needs and the company is operating efficiently with its retained profit. However, the real world is more nuanced, and the needs for external funding depend on multiple factors including a company’s growth strategy, capital structure, and profitability.