Firms that earn less than the cost of equity capital have a share price below book value.

Question

Quizplus · Accepted Answer

When a firm earns less than the cost of equity capital, it indicates that the returns generated by the company are not enough to satisfy the expectations of its shareholders. As a result, the market value of the firm's equity may decline, causing the share price to fall below its book value. Therefore, option A is correct.

Firms That Earn Less Than the Cost of Equity Capital