If a Firm Has a Required Rate of Return Equal

question 68

Multiple Choice

If a firm has a required rate of return equal to the ROE

• A) the firm can increase market price and P/E by retaining more earnings.
• B) the firm can increase market price and P/E by increasing the growth rate.
• C) the amount of earnings retained by the firm does not affect market price or the P/E.
• D) a and b.
• E) none of these.
• If required return and ROE are equal,investors are indifferent as to whether the firm retains more earnings or increases dividends.Thus,retention rates and growth rates do not affect market price and P/E.

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Definitions:

Sensory Skills

Abilities related to the detection, identification, and interpretation of sensory information through sight, sound, smell, taste, and touch.

Physical Energies

The various forms of energy, such as kinetic, potential, thermal, gravitational, sound, light, elastic, and electromagnetic energy, that have physical properties.

Sensation

The process by which our sensory receptors and nervous system receive and represent stimulus energies from our environment.

Perception

The process by which individuals organize and interpret their sensory impressions to give meaning to their environment.