Question

A group of individuals got together and purchased all of the outstanding shares of common stock of DL Smith, Inc. What is the return that these individuals require on this investment called?
A. dividend yield

B. cost of equity

C. capital gains yield

D. cost of capital

E. income return

Answer 1

Answer: (B) Cost of equity

Explanation:

 The cost of equity is basically refers to the return rate in an organization to the equity investors such as shareholders. The firms or organizations need to obtain the capital from he other firms for operating and the growth of an organization.

According to the question, the cost of equity is basically refers to the return that the individual wants to acquire on the investment when they purchased the common stock from the DL smith,Inc.

Therefore, Option (B) is correct answer.