If a firm follows a low-investment-rate plan (applies a low plowback ratio), its dividends will be _______ now and _______ in the future than a firm that follows a high-reinvestment-rate plan.
A) higher; higher
B) lower; lower
C) lower; higher
D) higher; lower
E) It is not possible to tell.

Question

Quizplus · Accepted Answer

A low-investment-rate plan means the firm retains a smaller portion of its earnings for reinvestment, leading to higher dividends now due to the larger payout. However, because less is reinvested, future growth and thus future dividends are likely to be lower compared to a firm that reinvests more heavily.

If a Firm Follows a Low-Investment-Rate Plan (Applies a Low