In measuring the cost of capital, management often measures the cost of the individual equities. A firm has no?

Question by Accounting: In measuring the cost of capital, management often measures the cost of the individual equities. A firm has no?
In measuring the cost of capital, management often measures the cost of the individual equities. A firm has no contractual obligation to pay anything to common shareholders. How can the capital they provide be said to have a cost other than zero?

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Answer by D.
no

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One Response to “In measuring the cost of capital, management often measures the cost of the individual equities. A firm has no?”

  1. Azrael 38 says:

    Management is required to act in the best interests of the owners (the stockholders). The cost of equity is the expected return that equity holders require from the firm. From a different perspective, the equity holder would be expecting a return equal to the cost of equity in order to be willing to invest in the company. Without the investor, the company would not be able to raise additional funds through equity.