The Cost of External Equity Capital Raised by Issuing New

question 44

True/False

The cost of external equity capital raised by issuing new common stock (re) is defined as follows, in words: "The cost of external equity equals the cost of equity capital from retaining earnings (rs), divided by one minus the percentage flotation cost required to sell the new stock, (1 - F)."

---

Definitions:

Solvency Test

An assessment to determine if a company can meet its long-term financial obligations.

Common Shareholders

Investors who own shares of common stock in a corporation, granting them voting rights and a residual claim on the company's assets in the event of liquidation.

Voting Power

The ability or right of an individual or group to influence decisions through the act of voting, often in the context of corporate governance or political elections.

Nonprofit Corporation

An organization established for purposes other than making a profit, often enjoying specific tax benefits.