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Why would the cost of equity increase if the risk-free rate increases?
Wiki User
∙ 16y ago
I start my disclaimer that i might be wrong..But i must give it a Try...
Now According to the cost of equity formula it is =Rf+B(Risk premium),,,,risk premium is nothing but the difference b/w Rm-Rf.....so the equation becomes Rf+B(Rm-Rf)..here Rm is Expected returns from the stock........
When the Rf increases Ist part of the equation increases the cost of equity whereas if we see the second part of the equation decreases the cost of Equity(If Rm is kept constant)......but As Rf increases the Rm also increases and hence the The Second part of the equation Also increases so the effect of Increases Cost of equity....
I hope i made some sense....
Wiki User
∙ 16y ago
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The recording of a profitable transaction will increase an asset and increase owners equity such as the sale of a product: Either Cash or Accounts Receivable would increase; and Current Profit increases (which is included in owners equity).
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The debt-to-equity ratio is a very simply calculation. Just divide a company's outstanding debt at a given date (usually quarter-end or year-end) by the company's equity on that same date. So, to increase this ratio, you would need to either increase the debt balance (i.e. borrow more) or decrease the equity balance (i.e. pay a dividend). Keep in mind, while increasing the debt-to-equity ratio will increase the ROE (return on equity) for a company, it also increases risk. Additionally, most banks include covenants in their loans that limit the debt-to-equity ratio for their customers (thereby making certain that the company has an equity "cushion" should an economic downturn occur).
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Increase
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How do you increase the rate of a reaction of a solid?
Grinding the solid into a powder increases the surface area and increases the rate of the reaction. Heating it would also increase the rate.
