The cost of common stock equity is ________.
A) the cost of the guaranteed stated dividend expected by the stockholders
B) the rate at which investors discount the expected dividends of the firm to determine its share value
C) the after-tax cost of the interest obligations
D) the historical cost of floating the stock issue

Question

Quizplus · Accepted Answer

The cost of common stock equity is the rate at which investors discount the expected dividends of the firm to determine its share value. This is because the cost of equity represents the return expected by shareholders in exchange for investing in the company's stock. It is not a guaranteed amount, nor is it a historical cost. The after-tax cost of interest obligations is relevant for debt financing, not equity financing.

The Cost of Common Stock Equity Is ________