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 are correct.

Question

Quizplus · Accepted Answer

If the required rate of return equals the ROE, the firm's growth rate does not affect the market price or P/E ratio, as the market perceives the firm's returns as just adequate to meet its required rate.

If a Firm Has a Required Rate of Return Equal