Although It Is a Subjective Measure, Analysts Often Estimate the Cost

question 30

Multiple Choice

Although it is a subjective measure, analysts often estimate the cost of common equity by adding a risk premium of 3 to 5 percentage points to the

• A)the cost of preferred stock for the firm.
• B)the risk free rate.
• C)interest rate on the firm's long term debt.
• D)the market return.
• E)the growth rate of the firm.

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Definitions:

Debt-service Requirements

This term refers to the amount of money needed to cover the repayment of interest and principal on a debt for a specific period.

Expected Future Cash Flows

The estimated amount of money that is anticipated to be generated from an investment, project, or asset over a period of time in the future.

Financial Statement Item

Any line item or component that appears in financial statements, such as balance sheet, income statement, or cash flow statement, representing a company's financial position or performance.

Unreliable

Not able to be trusted or depended upon for accuracy or truthfulness.