Final answer:
In the percent-of-sales method, as the dividend payout ratio goes up, the required new funds also rise.This necessitates sourcing additional funds externally. Option A is correct.
Step-by-step explanation:
In the percent-of-sales method, the dividend payout ratio refers to the percentage of profits that a company distributes to its shareholders as dividends. The required new funds, on the other hand, are the additional funds that a company needs to raise through external sources to finance its growth or investment plans.
Option A is correct. As the dividend payout ratio goes up, meaning the company distributes a higher percentage of profits as dividends, the required new funds also rise. This is because the company has less retained earnings to finance its growth, and thus needs to seek external funding.
Option B is incorrect. As the dividend payout ratio rises, the required new funds do not decline. Option C is also incorrect as the dividend payout ratio does affect the required new funds. The correct answer is option A.