The cost of external equity capital raised by issuing new common stock (r_e)is defined as follows,in words: "The cost of external equity equals 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)."

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This statement is true only if the expected growth rate is zero.Here are some illustrative numbers that show that the statement is true if g = 0 but false otherwise. 11ea42d0_c084_a33f_9abf_b168781ead91_TB2090_00

The Cost of External Equity Capital Raised by Issuing New