The discount rate that equates a future stream of expected dividends to the current price is a good approximation of the cost of common shares.

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This statement is true. The discount rate used in the dividend discount model (DDM) is a commonly used method to estimate the cost of equity or the required rate of return on common shares. The basic idea is that investors should only invest in a stock if the expected return is higher than the cost of the investment. By discounting the future stream of expected dividends back to the present using a suitable discount rate, investors can estimate whether the current stock price is undervalued or overvalued.

The Discount Rate That Equates a Future Stream of Expected