In Regards to Dividend Policy, Unless a Firm's Investment Policy

question 59

Multiple Choice

In regards to dividend policy, unless a firm's investment policy and borrowing remain constant:

• A)Its overall cash flows will remain the same
• B)Its overall cash flows will change
• C)Shareholders' risk will increase
• D)Shareholders' risk will decrease

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Definitions:

Discount Rate

The discount rate is the interest rate used to determine the present value of future cash flows in discounted cash flow analysis, reflecting the cost of capital or risk of the cash flows.

Required Rate of Return on Equity

The minimum rate of return that investors expect from their stock investments, considering the risk involved.

Plowback Ratios

A measure of how much of a company's net income is reinvested into the company rather than distributed to shareholders as dividends.

ROE

Return on equity, a measure of financial performance calculated by dividing net income by shareholders' equity, indicating how efficiently a company is using assets to generate profits.