A low-risk profitable firm intends to maintain its 60% dividend payout ratio in the future. It doesn't forecast any buybacks or equity raisings and is expected toalways remain profitable.Over time, this firm's 'retained profits' on the balance sheet would be expected to:Select one:O a. Grow.O b. Remain unchanged.O C. Shrink.O d. Insufficient information.

Dividend Payout ratio is the percentage of earnings paid to shareholders via dividends.The amount…

A low-risk profitable firm intends to maintain its 60% dividend payout ratio in the future. It doesn't forecast any buybacks or equity raisings and is expected to lways remain profitable. Over time, this firm's 'retained profits' on the balance sheet would be expected to: Select one: O a. Grow. O b. Remain unchanged. 0 с. Shrink. O d. Insufficient information.

A low-risk profitable firm intends to maintain its 60% dividend payout ratio in the future. It doesn't forecast any buybacks or equity raisings and is expected to lways remain profitable. Over time, this firm's 'retained profits' on the balance sheet would be expected to: Select one: O a. Grow. O b. Remain unchanged. 0 с. Shrink. O d. Insufficient information.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter9: Corporate Valuation And Financial Planning

Section: Chapter Questions

Problem 6Q

See similar textbooks

Related questions

Q: 3. Which of the below statements is false? P/E ratio decreases with ROI If a constant fraction b…

A: the statement : P/E ratio decreases with ROI is false. ROI is the opposite of P/E . The higher the…

Q: As companies evolve, certain factors can drive sudden growth. This may lead to a period of…

A: Dividend yield refers to the amount of dividend received by the outstanding shareholders paid by the…

Q: What is the economic rate of return?(as a %) (Do not round intermediate calculations. Enter your…

A: A capital budgeting project with a life of 10 years have been mapped cash flow wise and book value…

Q: Which of the following statements is most correct? (Hint: Work Problem 4-16 before answering 4-17,…

A: BEP ratio shows the earning power of the business before the impact of business' income taxes and…

Q: Need help on A to C

A: Since you have posted a question with multiple sub-parts, we will solve first three subparts for…

Q: Term Dividends one year from now (D₁) Horizon value Intrinsic value of Portman's stock The risk-free…

A: Dividend yieldIt is referred to as the ratio which shows how much a company pays out in dividends…

Q: K-Life financial services Limited uses risk-adjusted return on capital (RAROC) to measure…

A: Let's examine the computations and offer a more thorough justification. 1. Credit to the…

Q: You have calculated the WACC for a Company and noticed that it is too high. To reduce it, you could:…

A: WACC is the Average sum of weighted cost of equity plus weighted cost of debt and other cost of…

Q: АВС ΧYΖ Discount rate (r) Historical growth rate of dividends 0.015+2*0.085=0.185…

A: Stock value fluctuates with the time. It depends on firm performance and activities. There are…

Q: of stion According to MM Case II, if the expected return on assets decreases, what happens to the…

A: The question is asking about the relationship between the expected return on assets and the expected…

Q: Attempts Keep the Highest / 3 6. Expected returns, dividends, and growth The constant growth…

A: The objective of the question is to understand the impact of dividends on stock price, calculate the…

Question

A low-risk profitable firm intends to maintain its 60% dividend payout ratio in the future. It doesn't forecast any buybacks or equity raisings and is expected to
always remain profitable.
Over time, this firm's 'retained profits' on the balance sheet would be expected to:
Select one:
O a. Grow.
O b. Remain unchanged.
O C. Shrink.
O d. Insufficient information.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Define the concept used in the question

VIEW

Step 2: Explaination

VIEW

Solution

VIEW

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

A firm has decided to switch from FIFO to LIFO. Ceteris paribus (all things being equal), what impact will the change in accounting have on the following variables? Assume an inflationary environment. Net profit will: OA increase OB decrease OC not change OD. cannot determine
A publicly listed traded company is in financial distress. It is projected to stop paying dividends and is likely to stop trading as a going concern in the near future. Which of the following valuation methods would most likely be appropriate? O A. Asset based valuation O B. Relative valuation using price to earnings ratio OC. Discounted dividend model with single period of growth
The dividend growth model: a. is only as reliable as the estimated rate of growth. b. can only be used if historical dividend information is available. C. considers the risk that future dividends may vary from their estimated values. d. applies only when a firm is currently paying dividends. e. uses beta to measure the systematic risk of a firm.
Which of the following statements is correct? A. If a firm’s assets are growing at a positive rate, but its retained earnings are not increasing, then it would be impossible for the firm’s AFN to be negative. B. AFN is not always positive. C. If a firm increases its dividend payout ratio in anticipation of higher earnings, but sales and earnings actually decrease, then the firm’s actual AFN must, mathematically, exceed the previously calculated AFN. D. Higher sales usually require higher asset levels, and this leads to what we call AFN. However, the AFN will be zero if the firm chooses to retain all of its profits, i.e., to have a zero dividend payout ratio. E. Dividend policy does not affect the requirement for external funds based on the AFN equation.
Which of the following are false? I) Managers are reluctant to make dividend changes that might have to be reversed. II) Shifts in long-term sustainable earnings are followed by dividend changes. III) Firms have long-term target dividend payout ratios. Il only I only Il only None
Which of the following assumptions are necessary for AFN equation to work? 1) The ratios A0/S and LO/S, the profit margin, and payout ratio are stable. 2) Common stock and long-term debt are tied directly to sales. 3) None of the firm's ratios will change. 4) Fixed assets, but not current assets, are tied directly to sales. 5) Last year's total assets were not optimal for last year's sales.
growtri SLOCK As companies evolve, certain factors can drive sudden growth. This may lead to a period of nonconstant, or variable, growth. This would cause the expected growth rate to increase or decrease, thereby affecting the valuation model. For companies in such situations, you would refer to the variable, or nonconstant, growth model for the valuation of the company's stock. Consider the case of Portman Industries: Portman Industries just paid a dividend of $2.64 per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by 16.00% over the next year. After the next year, though, Portman's dividend is expected to grow at a constant rate of 3.20% per year. Assuming that the market is in equilibrium, use the information just given to complete the table. Term Value Dividends one year from now (D1) Horizon value (P) Intrinsic value of Portman's stock The risk-free rate (TRF) is 4.00%, the market risk premium (RPM) is 4.80%, and Portman's…
Which of the following events would cause a company's cost of retained earnings to increase? Group of answer choices the company's stock price falls the company's forecasted growth in profits and dividends is reduced the company diversifies into a safer industry the overall beta for a company falls
Considering each action independently and holding other things constant, which of the following actions would reduce a firm’s need for additional capital? a. An increase in the dividend payout ratio. b. A decrease in the days sales outstanding. c. An increase in expected sales growth. d. A decrease in the profit margin. When the company is working at full capacity, the assets in the AFN equation is the fixed assets only True False
Which of the following formulas is INCORRECT? g = retention rate × return on new investment. When return on equity is equal to the cost of equity, shareholders will prefer the firms' management to increase the payout ratio. When return on new investment is more than the cost of equity, the share price is expected to increase. g = (1 – payout rate) x return on new investment.
A firm that is increasing its capital structure leverage and increasing profitability will likely experience a (an) a. increasing value-to-book ratio b. decreasing return on assets c. volatile price-earnings ratio d. None of these answer choices are correct.
As companies evolve, certain factors can drive sudden growth. This may lead to a period of nonconstant, or variable, growth. This would cause the expected growth rate to increase or decrease, thereby affecting the valuation model. For companies in such situations, you would refer to the variable, or nonconstant, growth model for the valuation of the company's stock. Consider the case of Portman Industries: Portman Industries just paid a dividend of $1.68 per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by 20.00% over the next year. After the next year, though, Portman's dividend is expected to grow at a constant rate of 4.00% per year. Assuming that the market is in equilibrium, use the information just given to complete the table. Term Dividends one year from now (D1) Horizon value (P₁) Intrinsic value of Portman's stock Value