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

question 61

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 the dividend payout ratio is zero.
• D) Its stock price will decline unless the plowback rate exceeds the required return.

Differentiate between GDP and Net Domestic Product (NDP), and understand the role of depreciation.

Recognize the factors contributing to the underestimation or overestimation of GDP, including the underground economy and non-market transactions.

Identify the relationship between nominal GDP, real GDP, and the GDP deflator as indicators of economic health.

Distinguish between final goods and services and intermediate goods to prevent double counting in GDP calculation.

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Definitions:

Société Anonymes

A French term for a public limited company, characterized by having its shares offered to the public and managed by a board of directors.

France

A country located in Western Europe known for its rich history, culture, and contributions to art, science, and philosophy.

Shareholders

Individuals or entities that own one or more shares of stock in a corporation, making them partial owners of the company.

Legal Persons

Entities, such as corporations or governmental bodies, that are recognized by law as having rights and responsibilities similar to natural persons.