What happens to a firm that reinvests its earnings at a rate equal to the firm's...
What happens to a firm that reinvests its earnings at a rate equal to the firm's required return?
Multiple Choice
a)Its stock price will remain constant.
b)Its stock price will increase by the sustainable growth rate.
c)Its stock price will decline unless the dividend payout ratio is zero.
d)Its stock price will decline unless the plowback rate exceeds the required return.
Homework Answers
Its stock price will remain constant.
Because if we discount the cash flows with same required rate, stock price will remain constant.
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