Use of the Capital Asset Pricing Model (CAPM) in measuring the cost of common stock equity differs from the constant growth valuation model in that it directly considers the firm's risk as reflected by beta.

Question

Quizplus · Accepted Answer

The statement is true. The CAPM takes into account the firm's risk (as reflected by beta) in calculating the cost of common stock equity, whereas the constant growth valuation model assumes a constant growth rate and does not directly consider the firm's risk.

Use of the Capital Asset Pricing Model (CAPM) in Measuring