What is the most difficult aspect in determining a firm's weighted average cost of capital?

Question

Quizplus · Accepted Answer

Estimating the cost of equity is often considered the most difficult aspect of determining a firm's weighted average cost of capital (WACC) because it involves predicting future returns, which are uncertain and can vary significantly. Unlike debt or preferred stock, where costs can be more directly observed through market interest rates or dividend yields, the cost of equity relies on models like the Capital Asset Pricing Model (CAPM), which includes subjective estimates like the expected market return and the equity beta.

What Is the Most Difficult Aspect in Determining a Firm's