Cost of new external common equity
Cost of new external common equity, re, is a project financed with external equity must earn a higher rate of return because it must cover the flotation costs. Thus, the cost of new common equity is higher than that of common equity raised internally by reinvesting earnings.
Definitions
According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),
- Cost of new external common equity, re. A project financed with external equity must earn a higher rate of return because it must cover the flotation costs. Thus, the cost of new common equity is higher than that of common equity raised internally by reinvesting earnings.
Related concepts
- Financial management. A combination of enterprise efforts undertaken in order to procure and utilize monetary resources of the enterprise.
