5. Dividend reinvestment plans Aa Aa Dividend reinvestment plans (DRIPs) allow shareholders to reinvest their dividends in the company by purchasing additional shares instead of receiving cash dividend payments. The majority of large companies offer dividend reinvestment plans to their stockholders. These plans allow stockholders to automatically reinvest their dividends in the stock of the firm paying the dividend. Dividend reinvestment plans can be classified as either old stock or new stock plans. Praxis Inc. needs to raise a significant amount of new capital, so it is going to use cash raised from its dividend reinvestment plan as new equity capital for the firm. Which type of dividend reinvestment plan does this scenario describe? An old stock dividend reinvestment plan A new stock dividend reinvestment plan levels of participation in a dividend reinvestment program suggest that stockholders would be better served if the firm reduced its cash dividends. Why do firms use dividend reinvestment plans? Companies decide to start, continue, or terminate their dividend reinvestment plans for their stockholders based orn the firms' need for equity capital. A firm is likely to start using new stock DRIPs if it equity capital. additional