Answer the following statements true (T) or false (F)
1. The out-of-pocket cost of common stock is a good approximation of the cost of common stock equity.
2. The discount rate that equates a future stream of expected dividends to the current price is a good approximation of the cost of common stock.
3. Ke represents an expected return to stockholders as well as a cost to the firm.
4. The cost of retained earnings is considered to be equal to the required rate of return on a firm's outstanding common stock.
5. Retained earnings represent an internal source of funds that is raised without the payment of interest or cost to the firm's stockholders.
1. FALSE
2. TRUE
3. TRUE
4. TRUE
5. FALSE
"Opportunity cost" must be considered since earnings could be issued to shareholders in the form of dividends.
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