Cost of External Equity Capital Raised by Issuing New Common

question 25

True/False

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)."

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Definitions:

Perfect Fit

A situation where a model, equation, or line precisely describes or predicts the observed data without any errors.

Chi-square Test

A statistical test used to determine if there is a significant difference between observed and expected frequencies in one or more categories.

Nominal Variables

Variables that represent categories with no inherent order or ranking among them.

Chi-square Test of Independence

A statistical test used to determine if there is a significant association between two categorical variables.