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A firm with 500,000 shares outstanding earns $2 per share and pays out 40% of its earnings as dividends. By how much will the firms

A firm with 500,000 shares outstanding earns $2 per share and pays out 40% of its earnings as dividends.

  1. By how much will the firms retained earnings increase?
  2. Assuming that it follows a residual dividend policy (and raises no new capital) how much does it invest?

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