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

question 74

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 one 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 formula.

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Definitions:

Monopsonist

is a market condition where there is only one buyer facing many sellers, giving the buyer significant influence over prices.

Marginal Cost

The increase in total cost that arises from producing an additional unit of a good or service.

Wage Rate

The amount of money paid to an employee per unit of time for labor or services rendered.

Monopolist

A monopolist is a single seller in a market who has significant control over the price and supply of a product or service.