In computing the cost of common equity, if D₁ goes downward and P₀ goes up, K_e will

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Quizplus · Accepted Answer

D₁ refers to the dividend paid by the company, and if it goes downward, it means that the company is less profitable. P₀ refers to the stock price, and if it goes up, it means that the market perceives the company as more valuable. When a company is less profitable but more valuable, investors will demand a higher rate of return (K_e) to compensate for the increased risk. Therefore, the cost of common equity will go up, resulting in a decrease in K_e.

In Computing the Cost of Common Equity, If D1 Goes

In Computing the Cost of Common Equity, If D₁ Goes