If a company fails to accurately predict it's cost of equity,then:
A) the firm's wacc will also be inaccurate.
B) the firm may not be using the proper interest rate to estimate NPV.
C) the firm may incorrectly accept or reject projects based on decisions made using the cost of capital computed with an incorrect cost of equity.
D) All of the above are true.

Question

Quizplus · Accepted Answer

If a company fails to accurately predict its cost of equity, it will lead to inaccurate calculation of the company's WACC. This in turn will affect the company's ability to make correct investment decisions, as it may end up using the wrong interest rate to estimate the NPV of projects. Mis-estimation of cost of equity may also result in the incorrect acceptance or rejection of projects, which can have a negative impact on the overall financial health of the company. Therefore, all of the given options are true.

If a Company Fails to Accurately Predict It's Cost of Equity,then