If a firm is currently paying common share dividends to investors and those dividends are expected to grow at a low but steady rate in the future, then the cost of common equity for the firm can be determined by also using the current price of the firm's common shares.

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Quizplus · Accepted Answer

This statement is true. The cost of common equity can be estimated using the dividend growth model, which incorporates the current dividend payment and the expected growth rate of dividends. The current stock price can also be used to estimate the cost of common equity, as it reflects the market's expectations and perception of the firm's future cash flows.

If a Firm Is Currently Paying Common Share Dividends to Investors