The cost of equity for a firm:
A)tends to remain static for firms with increasing levels of risk.
B)increases as the unsystematic risk of the firm increases.
C)ignores the firm's risks when that cost is based on the dividend growth model.
D)equals the risk-free rate plus the market risk premium.
E)equals the firm's pretax weighted average cost of capital.

Question

Quizplus · Accepted Answer

The dividend growth model considers the firm's risk through the expected growth rate of dividends and the required rate of return, which reflects the risk perceived by investors.

The Cost of Equity for a Firm