Cutting the firm's dividend to increase investment will raise the stock price if,and only if,the new investments have

Question

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Cutting the firm's dividend to increase investment may be seen as a positive signal to investors that the company is committed to investing in profitable projects that will increase future earnings and cash flows. However, to actually increase the stock price, these investments must have a positive net present value (NPV) - meaning that they are expected to generate more revenues than costs over the investment's life - which should ultimately increase the company's overall value and stock price. Positive IRR, payback period, and growth rate measures are also important indicators of a project's potential profitability, but they do not guarantee a positive NPV, which is the most fundamental criterion for creating shareholder value.

Cutting the Firm's Dividend to Increase Investment Will Raise the Stock