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)A and B.
E)none of the above.

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 sufficient to meet its required rate.

If a Firm Has a Required Rate of Return Equal