Consider the following equation: Pretain = Pcum × The term Pretain in this equation represents:
A)the price of the stock if it retains and invests the cash.
B)the percentage of net income retained or reinvested back into the firm.
C)the percentage of net income paid out as a cash dividend.
D)the price of the stock if it retains cash to use in a share repurchase.

Question

Consider the following equation: Pretain = Pcum ×  The term Pretain in this equation represents:
A)the price of the stock if it retains and invests the cash. 
B)the percentage of net income retained or reinvested back into the firm. 
C)the percentage of net income paid out as a cash dividend. 
D)the price of the stock if it retains cash to use in a share repurchase.

Quizplus · Accepted Answer

Pretain represents the price of the stock if it retains and invests the cash. The formula is used to calculate the expected price of a stock if the company decides to retain its earnings instead of paying them out as a dividend.

Consider the Following Equation: Pretain = Pcum × the Term