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.

Question

Quizplus · Accepted Answer

Cutting dividends to invest more does not necessarily guarantee an increase in stock price. It depends on the profitability and success of the new investments made with the retained earnings. Therefore, statement A is false.

Which of the Following Statements Regarding Profitable and Unprofitable Growth