When a firm maintains a constant dividend policy, the firm's growth rate has no bearing on the external financing needed.

Question

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When a firm maintains a constant dividend policy, it means that a certain portion of its earnings is consistently paid out as dividends to shareholders. However, if the firm wants to expand or undertake new projects, it may need to raise additional financing through external sources such as issuing stocks or bonds. The amount of external financing needed would depend on the firm's growth rate as it would require more funds if it has a higher growth rate.

When a Firm Maintains a Constant Dividend Policy, the Firm's