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.

---

Definitions:

Compounded Monthly

Compounded monthly refers to the process where the interest earned on an investment is added to the principal sum each month, causing the principal amount to grow at an increasing rate.

Effective Rate

The actual interest rate an individual pays or earns on a loan or investment, taking into account the effects of compounding.

Compounded Semiannually

Refers to the process of calculating and adding interest to the principal balance of an investment or loan twice a year.

Strip Bond

A fixed-income security derived from the separation of the coupons from the principal of a bond, which are then sold separately as zero-coupon bonds.