Toasty Feet makes fur-lined boots for winter wear. The firm has a beta of 1.08 and just paid an annual dividend of $1.50 per share. Based on the security market line approach, which one of the following will increase the firm's cost of equity? Assume a constant market rate of return.
A) A decrease in the stock price.
B) A decrease in the risk-free rate of return.
C) A decrease in the firm's rate of growth.
D) A decrease in the dividend payout ratio.
E) A decrease in the firm's beta.
Correct Answer:
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