In General, It Is Not Possible for Re, the Cost

question 86

True/False

In general, it is not possible for re, the cost of new equity, to be lower than rs, the cost of retained earnings.However, an exception to this rule occurs when the share price increases just prior to the firm issuing new equity such that it more than offsets the flotation costs and thus, re becomes less than rs.

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Definitions:

Process Distribution Mean

The average value or central tendency of a distribution for a process' outcomes over a period of time.

Common Variation

Variability in data that is shared among all observations or variables being studied.

Randomly Occurring

Randomly occurring refers to events or phenomena that happen without a predictable pattern, often analyzed in probability and statistics to understand patterns and occurrences in data.

Assignable Variation

Variation in a process that can be traced to specific causes, as opposed to random or common cause variation.