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

Question

Quizplus · Accepted Answer

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.

If a Firm Has a Required Rate of Return Equal