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:

Production Possibilities Frontier

A graph showing all the possible highest production levels for two or more products, given certain inputs.

Trade

The act of buying, selling, or exchanging goods and services between people, firms, or countries.

Consumption Combination

The mix of goods and services that a consumer chooses to consume at a given time based on their preferences and budget.

Absolute Advantage

The ability of a country or entity to produce a good or service more efficiently than another country or entity.