When a firm reinvests some of its net income rather than distributing it all to owners, what is the result?
A) an increase in covenants
B) an increase in net liabilities
C) an increase in retained earnings
D) an increase in dividends

Question

Quizplus · Accepted Answer

When a firm reinvests some of its net income, it increases its retained earnings. Retained earnings are a source of financing that can be used for future growth opportunities or to pay off debt. Reinvesting earnings can benefit the firm in the long run as it enables it to generate more profits in the future, making the firm more valuable.

When a Firm Reinvests Some of Its Net Income Rather