Firms that earn less than the cost of equity capital have a share price

Name: Firms that earn less than the cost of equity capital have a share price
Brand: Quizplus
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Question

Quizplus · Accepted Answer

If a firm earns less than the cost of equity capital, investors may lose confidence in the company's ability to generate future cash flows and may demand a higher rate of return. This can lead to a decrease in the firm's share price, which can result in the share price falling below book value. Therefore, the correct choice is D, below book value.

Firms That Earn Less Than the Cost of Equity Capital