If the expected dividend growth rate is zero, then the cost of external equity capital raised by issuing new common stock If the expected growth rate is not zero, then the cost of external equity must be found using a different formula.

Question

Quizplus · Accepted Answer

If the expected dividend growth rate is zero, the cost of external equity capital raised by issuing new common stock would be the same as the dividend yield (i.e., the expected dividend divided by the current stock price). However, if the expected growth rate is not zero, the cost of external equity must be calculated using the dividend discount model or another formula that takes into account the expected growth rate.

If the Expected Dividend Growth Rate Is Zero, Then the Cost