Consider the Following Equation: P_retain = P_cum × the Term

question 14

Multiple Choice

Consider the following equation: P_retain = P_cum × The term P_retain in this equation represents:

• A) the price of the stock if it retains and invests the cash.
• B) the percentage of net income retained or reinvested back into the firm.
• C) the percentage of net income paid out as a cash dividend.
• D) the price of the stock if it retains cash to use in a share repurchase.

---

Definitions:

Investment

The allocation of resources, such as capital, to generate income or profit.

Standard of Living

A measure of the wealth, comfort, material goods, and necessities available to a certain socioeconomic class or a certain geographic area.

Municipal Bonds

Municipal bonds are debt securities issued by states, cities, counties, and other governmental entities to fund day-to-day obligations and to finance capital projects such as building schools, highways, or sewer systems.

Tax Treatment

The way in which a particular financial transaction or investment is taxed by government policy, affecting incentives and behaviors.