Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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quiz 10-3

(Measuring growth) Given that a firm's return on equity is 24 percent and management plans to retain 38 percent of earnings for investment purposes, what will be the firm's growth rate? If the firm decides to increase its retention rate, what will happen to the value of its common stock?
a. The firm's growth rate will be %. (Round to two decimal places.)
b. If the firm decides to increase its retention ratio, what will happen to the value of its common stock? (Select from the drop-down menus.)
An increase in the retention rate will
the rate of growth in dividends, which in turn will
increase
decrease
the value of the common stock.
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Transcribed Image Text:(Measuring growth) Given that a firm's return on equity is 24 percent and management plans to retain 38 percent of earnings for investment purposes, what will be the firm's growth rate? If the firm decides to increase its retention rate, what will happen to the value of its common stock? a. The firm's growth rate will be %. (Round to two decimal places.) b. If the firm decides to increase its retention ratio, what will happen to the value of its common stock? (Select from the drop-down menus.) An increase in the retention rate will the rate of growth in dividends, which in turn will increase decrease the value of the common stock.
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