'Cost of equity' is the return that equity holders expect from the firm and is directly related to the firm's retained earnings.

Question

Quizplus · Accepted Answer

The cost of equity represents the compensation the market demands in exchange for owning the asset and bearing the risk of ownership. It is not directly related to the firm's retained earnings but rather to the expected return investors require, which can be influenced by various factors including the company's risk profile and growth prospects.

'Cost of Equity' Is the Return That Equity Holders Expect