A firm has an ROE of 13% and a required rate of return on the stock of 16%. The firm currently has a dividend payout ratio of 26%. Investors pay no personal taxes on dividends. To increase value, it must:
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A. B. C. D.D
If the firm cannot invest the funds at a rate of return at least equal to that which the investors require, then the shareholders are better off if the firm pays out all it earns (provided these distributions are not taxed) so that the investors can invest the funds on their own at higher rates.