Which of the Following Is NOT Accurate Regarding Cost of Equity

question 139

Multiple Choice

Which of the following is NOT accurate regarding cost of equity capital estimates calculated using the SML approach?

• A) The SML applies only to firms with stable dividend growth rates.
• B) Like the dividend growth model, SML generally relies on using the past to predict the future.
• C) Unlike the dividend growth model, the SML estimate adjusts for risk.
• D) To implement this approach, the financial manager must estimate a market risk premium and a beta coefficient.
• E) The quality of the estimate using the SML approach is sensitive to the quality of the estimates for the input variables in the model.

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