According to finance theory, which of the following approaches can be used to estimate a firm's cost of equity?

Question

Quizplus · Accepted Answer

All three approaches: the capital-asset-pricing model approach, the dividend growth approach, and the risk premium approach, can be used to estimate a firm's cost of equity. The capital-asset-pricing model approach is based on the idea that the cost of equity is equal to the risk-free rate plus a premium for the systematic risk of the investment, while the dividend growth approach uses the expected dividends and growth rate to estimate the cost of equity. The risk premium approach looks at the difference between the expected return on the market and the risk-free rate to estimate the cost of equity.

According to Finance Theory, Which of the Following Approaches Can