What Happens to a Firm That Reinvests Its Earnings at a Rate

question 23

Multiple Choice

What happens to a firm that reinvests its earnings at a rate equal to the firm's required return?

• A)its stock price will remain constant
• B)its stock price will increase by the sustainable growth rate
• C)its stock price will decline unless dividend payout ratio is zero
• D)its stock price will decline unless plowback rate exceeds required return

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Definitions:

Clouding

A visual effect where transparency is reduced, leading to a opaque or milky appearance, often observed in materials or solutions.

Lens

Disk-shaped structure that bends light rays so they fall on an eye’s photoreceptors.

Organs

Structures made up of different tissues that perform specific functions within an organism, such as the heart, lungs, or liver.

Body Position

The orientation or posture of the body or parts of the body in relation to the environment or a reference point.