The cost of common stock equity can best be described as: A) P_o= D₁/(k_s-g) B) k_s= (D₁/P_o) + g C) P_o= D₁/(k_s+g) D) k_s= (D₁/P_o) - g

Question

Quizplus · Accepted Answer

The cost of common stock equity is best described by the formula $k_s = \frac{D_1}{P_0} + g$, where $k_s$ is the cost of equity, $D_1$ is the expected dividend per share one year from now, $P_0$ is the current price per share, and $g$ is the growth rate of dividends. This matches choice B.

The Cost of Common Stock Equity Can Best Be Described