All Else Constant, Which One of the Following Will Increase

question 58

Multiple Choice

All else constant, which one of the following will increase a company's cost of equity if the company computes that cost using the security market line approach? Assume the firm currently pays an annual dividend of $1 a share and has a beta of 1.2.

• A) A reduction in the dividend amount
• B) An increase in the dividend amount
• C) A reduction in the market rate of return
• D) A reduction in the firm's beta
• E) A reduction in the risk-free rate

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Definitions:

Tax Revenue

The income that is gained by governments through taxation of individuals and businesses.

Tax Policy

The set of laws and regulations that govern how taxes are collected, managed, and utilized by the government.

Production Possibilities Frontier

The production possibilities frontier (PPF) is a curve depicting all maximum output possibilities for two goods, given a set of inputs.

Societal Welfare

The overall well-being and quality of life of the people in a society, often considered in terms of economic, social, and environmental indicators.