New Common Stock Is More Expensive Than Required Rate of Return

question 13

Multiple Choice

New common stock is more expensive than required rate of return (K_e) because new common stock has to

• A) compensate for risk.
• B) compensate for more dividends.
• C) compensate for expansionary problems.
• D) cover distribution costs.

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Definitions:

Order Quantity

The amount of stock or goods a company purchases or plans to purchase in a single order.

Operating Cycle

The amount of time it takes for a business to buy inventory, sell that inventory, and collect cash from the sale.

Cash Cycles

The duration it takes for a business to convert its investments in inventory and other resources back into cash flows from sales.

Accepts Cash

A phrase indicating that a business or entity is willing to receive cash as a form of payment for goods or services.