If external financing needed cannot be obtained due to poor market conditions,a firm could reduce the amount needed by increasing its retention ratio.

Question

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If a firm is unable to obtain external financing due to poor market conditions, it can increase its retention ratio by retaining more earnings instead of paying them out as dividends. This would reduce the amount of funding the firm needs from external sources. However, it may also limit the amount of funds available for other purposes such as investments or shareholder payouts.

If External Financing Needed Cannot Be Obtained Due to Poor