Question

. If a company wants to grow but does not want to take on any new debt or issue any more stock, what would be the best course of action? a. Payout a high proportion of net income as dividends so that the stock price will rise. b. Reduce the dividend payout ratio so that more money gets “plowed back” into retained earnings. c. Double the sales prices so that more revenue is generated. d. Buy raw materials from cheaper sources, even if the quality is not as good. e. Ask all management personnel to take a 10% cut in pay.

Answer 1

Option B : Plowing back the profit is the best way to invest money back in to the business. Thus, by reducing dividend, they can retain money and invest in high growth projects for overall growth.

Option A: Wrong : Payment of dividend doesn't provide a good growth, and after payment of dividend share prices return back to old level.

Option C : Wrong :If price is doubled, the sales will be decreased. It can go both ways for the company.

Option D : Wrong : This will lead to low morale of workers and will hamper the growth.