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. the firm can increase market price and P/E by retaining more earnings and increasing the growth rate.
E. None of the options are correct.
C. the amount of earnings retained by the firm does not affect market price or the P/E.
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.
You might also like to view...
When a dividend is declared and paid, the Dividends account is debited and Cash is credited
Indicate whether the statement is true or false
Walton's Warehouse reported sales of $640,000, a contribution margin of $8 per unit, fixed costs of $314,000, and a profit of $30,000 . How many units did Walton's Warehouse sell?
a. 3,750 units b. 23,375 units c. 43,000 units d. 62,625 units
Simplification of the accounting system by eliminating accumulation and transfer of costs as products move through production is called ________ accounting
a. backflush b. process c. cost d. product
Jane and Mark enter into a ceremonial marriage in Las Vegas. Both Jane and Mark are seventeen years old at the time and are both minors. What is the best way to classify the marriage?
a. Void marriage b. Voidable marriage c. Common law marriage d. Domestic partnership