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    Question

    According to Walter’s Model, a firm with high return

    on investment (RoI) and low cost of capital should:
    A Distribute full profits Correct Answer Incorrect Answer
    B Follow a stable dividend policy Correct Answer Incorrect Answer
    C Retain entire earnings Correct Answer Incorrect Answer
    D Pay intermittent dividends Correct Answer Incorrect Answer

    Solution

    Walter’s model states that firms with RoI > cost of capital should reinvest earnings, as this maximizes shareholder wealth.

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