An increase in the retention ratio will:
A)increase the dividends per share.
B)decrease a firm's sustainable rate of growth.
C)decrease the equity of a firm.
D)increase the dividend growth rate.
E)increase the value of a firm's stock.

Question

Quizplus · Accepted Answer

An increase in the retention ratio (the proportion of earnings retained rather than paid out as dividends) typically means more funds are being reinvested into the company for growth, which can lead to an increase in the value of the firm's stock as future earnings and growth prospects improve.

An Increase in the Retention Ratio Will