Which of the following statements is true?
A)The CAPM will provide a reasonably good cost of capital estimate in many corporate scenarios.
B)Most corporate CFOs used alternative models to the CAPM when estimating their projects' costs of capital.
C)The CAPM provides the most accurate results when it is used to determine which financial investments are best to undertake at any given point in time.
D)The CAPM will provide a cost of capital that is accurate to the hundredth of a percent.

Question

Quizplus · Accepted Answer

The CAPM is widely used in the industry as it provides a reasonably good estimate of the cost of capital in many corporate scenarios. However, it is not the only model used, and some CFOs may prefer to use alternative models depending on their specific needs and preferences. The CAPM is also useful for determining the required rate of return for financial investments, but it may not provide accurate results down to the hundredth of a percent as it is based on assumptions and estimates. While there are limitations to the CAPM model, it is still widely used and provides a reasonable estimate of the cost of capital in many corporate scenarios. While some CFOs may use alternative models, the CAPM remains a popular method for estimating the cost of capital. The model is not designed to provide an accurate estimate to the hundredth of a percent, but rather as a tool for analyzing financial investments.

Which of the Following Statements Is True