The firm's cost of external equity raised by issuing new stock is the same as the required rate of return on the firm's outstanding common stock.

Question

Quizplus · Accepted Answer

The cost of external equity raised by issuing new stock is typically higher than the required rate of return on the firm's outstanding common stock. This is because new investors may require a higher return to invest in the company, as they are taking on additional risk by investing in a new security.

The Firm's Cost of External Equity Raised by Issuing New