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It seems that this part of the lesson went over my head. There was a question that says, “The Market value of a firm’s outstanding common shares will be higher, everything else equal, if…”
And the correct choice is “Investors have a lower required rate on equity.” The explanation give says, “investors value common shares more highly if they have a lower required return because then they apply a lower discount rate to the expected future dividend stream of the company.” So a lower required return leads to a lower discount rate (okay, I understand that), which then leads to higher value of common shares?
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