Which of the Following Is Incorrect for a Firm with a Payout

question 95

Multiple Choice

Which of the following is incorrect for a firm with a payout ratio of 0.15 and ROE of 20 percent:

• A)It reinvests 85 percent of its earnings back into the firm
• B)The firm's retained earnings will increase the book value of equity by 17 percent
• C)It pays a dividend of 15 cents per share
• D)The firm's earnings and equity will grow by 17 percent per year

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Definitions:

Capital Budgeting Decision

A capital budgeting decision involves the process of deciding whether to pursue a long-term investment or project based on its potential financial returns.

Lease Financing

A method of financing where a firm obtains the use of certain assets through leasing, avoiding the need to invest capital in them.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision or investment.

Foregone CCA

The term "Foregone CCA" does not exist in widely recognized financial lexicons and might be incorrectly stated or highly specific to a niche sector.