If a Corporation Retains All Its Profits and Distributes None

question 64

Multiple Choice

If a corporation retains all its profits and distributes none of the profit to owners, how can owners benefit?

• A)If the retained earnings are expected to create future profits, the market price of the firm's stock will increase and create a capital gain for stockholders if the stock is sold.
• B)Shares of stock can be converted into bonds so stockholders will be able to earn coupon payments.
• C)Owners will only benefit if some profits are paid out in the form of dividends.
• D)Owners will benefit by changing the board of directors.

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Definitions:

Experiential System

Part of dual-process theories of cognition, referring to the intuitive, automatic, and often emotional way of processing information.

Schema

A mental structure, stored in memory, that is based on prior knowledge.

Dual Process

A theory describing two distinct systems in the brain that process information: one that is automatic and rapid, and another that is deliberate and slow.

Information Processing

The series of actions or steps taken by the brain to receive, interpret, store, and retrieve information.