An increase in ________ will increase the cost of common equity.

Name: An increase in ________ will increase the cost of common equity.
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Question

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An increase in the expected growth rate of dividends (A) and the risk-free rate (B) both lead to an increase in the cost of common equity. Higher expected growth rates of dividends signal higher future cash flows, increasing the value and cost. A higher risk-free rate raises the baseline return investors expect, increasing the required return on equity.

An Increase in ________ Will Increase the Cost of Common