assume that a firms total dollar capital budget is fixed and will not be changed

Question

assume that a firms total dollar capital budget is fixed and will not be changed. Which of the following will increase the retained earning break point, i.e increase the dollar amount of total capital at which the WACC will increase due to having to issue new common stock?

a. the firm's net income increases

b. the firm increases its dividend payout ratio

c. the firm increases the percentage of equity in its target capital structure

d. the risk of the average capital budgeting project increases

e. the risk of the average capital budgeting project decreases

Explanation / Answer

c. the firm increases the percentage of equity in its target capital structure

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