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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