The recommended model to estimate the cost of common equity for a firm is
A) the one-stage constant growth dividend model.
B) the multistage -growth dividend model.
C) the capital asset pricing model(CAPM).
D) None of the above

Question

Quizplus · Accepted Answer

The CAPM is considered the best choice to estimate the cost of common equity for a firm because it takes into account market risk and allows for the calculation of a specific required return for a company's equity based on its beta and the risk-free rate. The dividend models do not take into account market risk and are therefore not as widely used.

The Recommended Model to Estimate the Cost of Common Equity