Dividend Policy at Growth Firms

Assume that you are following a growth firm, whose growth rate has begun easing. Which of the following would you most likely observe in terms of dividend policy at the firm?

a. An immediate increase of dividends to reflect the lower reinvestment needs.

b. No change in dividend policy, and an increase in the cash balance.

c. No change in dividend policy, and an increase in acquisitions of other firms Explain.

3 These are growth rates projected by Value Line for firms in April 1999.

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