The cost of common stock equity is
A) the cost of the guaranteed stated dividend.
B) the aftertax cost of the interest obligations.
C) the historical cost of floating the stock issue.
D) the rate at which investors discount the expected dividends of the firm.

Question

Quizplus · Accepted Answer

The cost of common stock equity refers to the rate of return that investors require to invest in the company's common stock. This rate is determined by the price of the stock, the expected dividend payments, and the perceived risk associated with the company. Therefore, the correct answer is D, which states that the cost of common stock equity is the rate at which investors discount the expected dividends of the firm. The other choices are not accurate, as A refers to the stated dividend, B refers to interest obligations, and C refers to historical costs, none of which represent the cost of common stock equity.

The Cost of Common Stock Equity Is