Other things being equal,a growth firm compared with a value firm will have:

A) higher cost of capital
B) higher growth rate on assets
C) all of the above
D) none of these choices

Question

Other things being equal,a growth firm compared with a value firm will have:

A) higher cost of capital
B) higher growth rate on assets
C) all of the above
D) none of these choices

Quizplus · Accepted Answer

The higher the cost of equity capital,the greater the 'riskiness' of the firm's equity,which in turn implies a higher book-to-market ratio.Thus,in general,we expect value firms to be of higher risk than growth firms.

Other Things Being Equal,a Growth Firm Compared with a Value