Question

If a firm's expected growth rate increased then its required rate of return would a. increase. b. possibly increase, possibly decrease, or possibly remain constant. c. decrease. d. fluctuate more than before. e. fluctuate less than before.

Answer 1

The correct answer is option (B).

Step-by-step explanation:

According to the scenario, the rate of return would possibly increase, possibly decrease, or possibly remain constant because of the following reasons :

• In an organization, the rate of return depends on many terms i.e stock rate, dividends, etc.

• The rate of return increases when dividends do not increase with the growth rate.

• The rate of return decreases when dividends increase with the growth rate.