The dividend growth rate can be expr$$ssed as:

$g=$ Return on Equity $($ROE$)$ the plowback$/$retention rate where ROE $=$ Net Income $\frac{?}{?}$ Equity

A firm's dividend can also be thought of as:

$D_1=$ Earnings $1$ the dividend payout rate

Now assume that Firm $x$ only finances its operations with retained earnings $($no new borrowing or new equity$)$

$($I$)$ Holding all else constant, this implies that the price of the stock increases as a firm becomes more profitable.

$($II$)$ Holding all else constant, this implies that the growth rate of dividends will slow $($decrease$)$ as Firm X$\text{'}$s dividend payout increases.

Multiple Choice

Both are true

$($I$)$ false; $($II$)$ true