6. Dividend reinvestment plans As 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 Extensive Enterprise Company 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? O An old stock dividend reinvestment plan O A new stock dividend reinvestment plan Some firms that use slightly below the ma dividend reinvestment plan will allow stockholders to purchase stock at a price an old stock a new stock Why do firms use dividend reinvestment plans? Companies decide to start, continue, or terminate their dividend reinvestment plans for their stockholders based on the firms need for equity capital. A firm is likely to start using new stock DRIPs if it needs additional equity capital