In determining the cost of retained earnings
A) the dividend valuation model is inappropriate.
B) flotation costs are included.
C) growth is not considered.
D) the capital asset pricing model can be used.

Question

Quizplus · Accepted Answer

The capital asset pricing model (CAPM) can be used to determine the cost of retained earnings by estimating the expected return required by equity investors. This model takes into account the risk-free rate, the stock's beta (which measures its volatility relative to the market), and the market risk premium.

In Determining the Cost of Retained Earnings