The cost of common stock equity may be estimated by using the
A) internal rate of return.
B) yield curve.
C) capital asset pricing model.
D) DuPont analysis.

Question

Quizplus · Accepted Answer

The capital asset pricing model (CAPM) is a widely used method for estimating the cost of common stock equity. It takes into account the risk-free rate, the expected return on the market, and the stock's beta (a measure of its volatility). The CAPM can provide a reasonable estimate of a company's cost of equity, which is important for determining its overall cost of capital. Options A, B, and D are not appropriate methods for estimating the cost of common stock equity.

The Cost of Common Stock Equity May Be Estimated by Using