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1. (10 points) The required rate of return of a company's stock is 12%. The company retains 30% of its earnings each year to reinvest.
1. (10 points) The required rate of return of a company's stock is 12%. The company retains 30% of its earnings each year to reinvest. Its ROE is also 12%. Suppose that the company has discovered an investment opportunity that will increase its ROE to 20%. As a shareholder of the company, would you want the company to increase or decrease its plowback ratio (earning's retention rate)? Explain in detail
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