A Firm Increases Its Dividend Plowback Ratio

question 63

Multiple Choice

A firm increases its dividend plowback ratio. All else equal, you know that ________.

• A) earnings growth will increase and the stock's P/E will increase
• B) earnings growth will decrease and the stock's P/E will increase
• C) earnings growth will increase and the stock's P/E will decrease
• D) earnings growth will increase and the stock's P/E may or may not increase

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Definitions:

Price

The money amount expected, needed, or conferred as a payment for a product.

Miles

A unit of distance or length, traditionally equal to 5280 feet in the United States and slightly more than 1609 meters by international agreement.

Perfect Substitutes

Goods that a consumer is completely indifferent between, meaning that one can replace the other in consumption without any loss of utility.

Income Effect

The income effect describes how a change in a consumer's income affects their purchasing power and consumption choices.