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Firm ABC just announced it would cut its dividend payout ratio from 50% to 30%, and use the extra funds to expand. The reinvestment will
Firm ABC just announced it would cut its dividend payout ratio from 50% to 30%, and use the extra funds to expand. The reinvestment will earn a rate of return of 14%. Prior to the announcement, Firm ABC earnings were expected to grow at a 10% rate. Its cost of capital is 12%. The stock price will decrease after the announcement. True or False?
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