Which of the Following Statements Regarding Profitable and Unprofitable Growth

question 54

Multiple Choice

Which of the following statements regarding profitable and unprofitable growth is false?

• A) If a firm wants to increase its share price, it must cut its dividend and invest more.
• B) If the firm retains more earnings, it will be able to pay out less of those earnings, which means that the firm will have to reduce its dividend.
• C) A firm can increase its growth rate by retaining more of its earnings.
• D) Cutting the firm's dividend to increase investment will raise the stock price if, and only if, the new investments have a positive NPV.

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Definitions:

Long Run

A period of time in which all factors of production and costs are variable, and firms can enter or exit the industry.

Market Entry

The process by which a new competitor enters an existing market to offer goods or services.

Profits Maximize

The process of adjusting production and operations to achieve the highest possible profit margins.

Restaurant Industry

A sector of the economy that is concerned with the preparation, sale, and service of food and beverages to customers.