If You Were to Argue That the Firm's Cost of Equity,r_s,increases

question 63

Multiple Choice

If you were to argue that the firm's cost of equity,r_s,increases as the dividend payout decreases,you would be making an argument ____ with MM's dividend irrelevance theory,and ____ with the theory that investors prefer dividends received in the current period rather than capital gains received in the future.

• A) consistent;consistent
• B) inconsistent;consistent
• C) consistent;inconsistent
• D) inconsistent;inconsistent
• E) The argument above does not make sense;neither theory involves the cost of equity capital.

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