In common stock valuation, any action taken by the financial manager that increases risk will also increase the required return.

Question

Quizplus · Accepted Answer

This is consistent with the basic principle of finance, which states that investors require a higher return for taking on additional risk. Therefore, any action that increases the risk of an investment, such as increasing the debt-to-equity ratio or investing in a riskier industry, will also increase the required return of the stock.

In Common Stock Valuation, Any Action Taken by the Financial