Measuring growth: Given that a firm's return on equity is 22% and management plans to retain 39% of earning for investment purposes, what will be the firm's growth rate? If the firm decides to increase its retention rate, what will happen to the value of its common stock?
A. The firm's growth rate will be ____% (round to two decimal places)
B. If the firm decides to increase its retention ratio, what will happen to the value of its common stock?
An increase in the retention rate will increase / decrease the rate of growth in dividends, which in turn will increase / decrease the value of the common stock.