Question

If a firm has a required rate of return equal to the return on equity (ROE), what can be said about the firm's cost of equity?

1) The cost of equity is equal to the ROE
2) The cost of equity is greater than the ROE
3) The cost of equity is less than the ROE
4) The cost of equity cannot be determined without additional information

Answer 1

If a firm has a required rate of return equal to the return on equity (ROE), About the firm's cost of equity, It can be said that "The cost of equity is equal to the ROE". Option 1 is answer.

Step-by-step explanation:

The cost of equity refers to the minimum return that investors expect from a company's stock. The return on equity (ROE) is a measure of a company's profitability. It is calculated by dividing the net income by the shareholder's equity.

If a firm has a required rate of return equal to the ROE, it means that investors are satisfied with the current level of profitability and do not require any additional return. In other words, the cost of equity is equal to the ROE.

Therefore, the correct option is 1.