estimating the cost of equity by use of the DCF method, the single biggest potential problem is to determine the growth rate that investors use when they estimate a stock's expected future rate of return This problem leaves us unsure of the true value of rs.

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Quizplus · Accepted Answer

This is true because the growth rate assumption has a significant impact on the estimated cost of equity, and it can be difficult to accurately predict future growth rates. Therefore, the cost of equity calculated using the DCF method may not necessarily reflect the true value of rs.

Estimating the Cost of Equity by Use of the DCF