Which of the following statements is CORRECT?
A) If the calculated beta underestimates the firm's true investment risk¾i.e., if the forward-looking beta that investors think exists exceeds the historical beta¾then the CAPM method based on the historical beta will produce an estimate of rs and thus WACC that is too high.
B) Beta measures market risk, which is, theoretically, the most relevant risk measure for a publicly-owned firm that seeks to maximize its intrinsic value.This is true even if not all of the firm's stockholders are well diversified.
C) An advantage shared by both the DCF and CAPM methods when they are used to estimate the cost of equity is that they are both "objective" as opposed to "subjective, " hence little or no judgment is required.
D) The specific risk premium used in the CAPM is the same as the risk premium used in the bond-yield-plus-risk-premium approach.
E) The discounted cash flow method of estimating the cost of equity cannot be used unless the growth rate, g, is expected to be constant forever.
Correct Answer:
Verified
Q48: Which of the following statements is CORRECT?
A)
Q49: The Tierney Group has two divisions of
Q50: Which of the following statements is CORRECT?
A)
Q51: Bloom and Co.has no debt or preferred
Q52: Suppose Acme Industries correctly estimates its WACC
Q54: Which of the following statements is CORRECT?
Q55: Which of the following statements is CORRECT?
A)
Q56: Which of the following statements is CORRECT?
A)
Q57: Which of the following statements is CORRECT?
A)
Q58: Which of the following statements is CORRECT?
A)
Unlock this Answer For Free Now!
View this answer and more for free by performing one of the following actions
Scan the QR code to install the App and get 2 free unlocks
Unlock quizzes for free by uploading documents