Which of the following statements is correct?

Question

Quizplus · Accepted Answer

ROCE and cost of capital to be used for discounted cash flow (DCF) are related, as the former is used to generate cash flows and the latter is used to discount those cash flows. Therefore, there should be a clear relationship between the two. However, the exact nature of their relationship can vary depending on factors such as the company's risk profile and the expected return demanded by investors.

B is incorrect as while the P/E ratio may indicate investor expectations, it cannot be easily converted into a cost of capital figure.

C is incorrect as a high dividend yield could mean that the company's dividends are high relative to its share price, but it does not necessarily mean that shareholders expect future dividends to grow. Dividend yield is influenced by a variety of factors, including the company's dividend policy and overall market conditions.

Which of the Following Statements Is Correct