If the Expected Dividend Growth Rate Is Zero,then the Cost

question 84

True/False

If the expected dividend growth rate is zero,then the cost of external equity capital raised by issuing new common stock (r_e) is equal to the cost of equity capital from retaining earnings (r_s) divided by 1 minus the percentage flotation cost required to sell the new stock,(1 - F).If the expected growth rate is not zero,then the cost of external equity must be found using a different procedure.

---

Definitions:

Demand Deposits

Bank account funds that are available on demand without any delay or penalties, like those in checking accounts.

Excess Reserves

The reserves held by a bank in excess of the minimum reserve requirements set by central banking authorities.

Required Reserves

The minimum amount of reserves that banks are required to hold by law, as a safeguard against bank runs.

Demand Deposits

Bank account balances that can be withdrawn on demand without any notice, such as in checking accounts.