The cost of capital - Cost of common stock

5 important questions on The cost of capital - Cost of common stock

What is the constant-growth valuation model?

Assumes that the value of a share of stock equals the present value of all future dividends that is expected to provide over an infinite time horizon.

What is the cost of common stock equity, Rs?

The rate at which investors discount the expected dividends of the firm to determine its share value.

What is the capital asset pricing model (CAPM)?

Describes the relationship between the required return (Rs) and the nondiversifiable risk of the firm as measured by the beta coefficient (b)
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What is the cost of retained earnings, Rr?

The same as the cost of an equivalent fully subscribed issue of additional common stock, which is equal to the cost of common stock equity, Rs.

What is the cost of a new issue of common stock, Rn?

The cost of common stock, net of underpricing and associated flotation cost?

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