Which of the following statements is true? increasing dividends will always increase the stock price. increasing dividends will always decrease the stock price, because the firm is depleting internal funding resources. increasing dividends may not always increase the stock price, because less earnings may be invested back into the firm and that impedes growth.

The correct answer is letter "C": Increasing dividends may not always increase the stock price, because less earnings may be invested back into the firm and that impedes growth.

Explanation:

Dividends are one of the main determinants of corporate interest, according to the Dividend Discount Model (DDM). The other determinant is the risk of cash flows from the product, which is expressed in the rate of return expected. Because of the need for reinvestment, most fast-growing companies do not pay dividends. It is only from free cash flow that dividends should be paid, otherwise, if taken the payment from the earnings, investments in the company will be less.

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