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

question 82

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 procedure.

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Definitions:

Liability

A financial obligation or debt owed by a company to another entity, payable in the form of money, services, or goods, recorded on the right-hand side of the balance sheet.

Accounting Equation

The fundamental principle of accounting that states that assets equal liabilities plus owners' equity, serving as the foundation for double-entry bookkeeping.

Liability

Debts or financial duties a business is responsible for paying back to other entities, which require settling by transferring economic resources over a period.

Cash

Money in the form of coins or banknotes, including the balance of bank accounts.