The recommended model to estimate the cost of ordinary shares for a company is
A) a one-stage constant growth model.
B) a multistage growth model.
C) the CAPM.
D) none of the above.

Question

Quizplus · Accepted Answer

The CAPM (Capital Asset Pricing Model) is the recommended model to estimate the cost of ordinary shares because it takes into account both the risk-free rate and the expected market return, as well as the individual stock's beta (systematic risk). This provides a more accurate estimation of the required return on equity for a company than the one-stage or multistage growth models, which rely on assumptions about long-term growth rates and dividend payouts.

The Recommended Model to Estimate the Cost of Ordinary Shares