Which of the following statements is true concerning companies that do not pay dividends?

Question

Quizplus · Accepted Answer

Companies that do not pay dividends can still estimate their cost of equity capital using the Capital Asset Pricing Model, which factors in the risk-free rate, market risk premium and company-specific risk. Option B is incorrect because the growth short-term rate of earnings per share only reflects the expected growth rate of earnings, not the cost of equity capital. Option C is incorrect because the dividend capitalization model requires companies to pay dividends, which is not the case for companies that do not pay dividends.

Which of the Following Statements Is True Concerning Companies That