Which of the following statements is FALSE regarding profitable and unprofitable growth?
A) If a firm wants to increase its share price, it must diversify.
B) If a firm retains more earnings, it will pay out less of those earnings, reducing its dividends.
C) A firm can increase its growth rate by retaining more of its earnings.
D) Cutting a firm's dividend to increase investment will raise the stock price if the new investment has a positive net present value (NPV).

Question

Quizplus · Accepted Answer

Diversification does not guarantee an increase in share price or profitability. In fact, diversification can lead to lower profitability if the new ventures are not successful. The other statements are true. Retaining more earnings can lead to higher growth rates, but lower dividend payments. Cutting a firm's dividend to finance profitable investments can lead to a higher stock price.

Which of the Following Statements Is FALSE Regarding Profitable and Unprofitable