A firm can increase the growth rate of common stockholders' investment in the firm by retaining more earnings or increasing return on equity.

Question

Quizplus · Accepted Answer

Retaining more earnings and increasing return on equity both contribute to a higher growth rate of common stockholders' investment in the firm. Retaining more earnings allows the firm to invest in new projects and expansion, leading to potential future profits and growth. Increasing return on equity means the firm is generating more profits with the same amount of equity, leading to higher earnings available for reinvestment and potentially higher stock prices.

A Firm Can Increase the Growth Rate of Common Stockholders