Which of the Following Statements Is Most Correct

question 20

Multiple Choice

Which of the following statements is most correct?

• A) The CAPM approach to estimating a firm's cost of common stock never gives a better estimate than the DCF approach.
• B) The CAPM approach is typically used to estimate a firm's cost of preferred stock.
• C) The risk premium used in the bond-yield-plus-risk-premium method is the same as the one used in the CAPM method.
• D) In practice (as opposed to in theory), the DCF method and the CAPM method usually produce exactly the same estimate for rs.
• E) The statements above are all false.