[amp_mcq option1=”Market Price is equal to Book Value of share” option2=”Shareholders are ready to subscribe to right issue” option3=”Market Price is more than Issue Price” option4=”AC of the three above” correct=”option1″]
The correct answer is: A. Market Price is equal to Book Value of share
Cost Capital for Equity Share Capital is the amount of money that a company raises by issuing new shares. It is calculated by multiplying the number of shares issued by the issue price per share.
The market price of a share is the price at which it is currently trading on the stock market. The book value of a share is the value of the company’s assets minus its liabilities, divided by the number of shares outstanding.
The market price of a share is not always equal to its book value. This is because the market price is determined by supply and demand, while the book value is a historical measure of the company’s worth.
Shareholders are not always ready to subscribe to a right issue. A right issue is a type of share issue where existing shareholders are given the opportunity to buy new shares at a discount to the market price. Shareholders may not be willing to subscribe to a right issue if they believe that the company is not a good investment.
Therefore, the cost capital for equity share capital does not imply that the market price is equal to the book value of the share.