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.

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Definitions:

Disintermediation

The removal of intermediaries from a supply chain or business process, often through direct transactions between producers and consumers facilitated by digital technologies.

Porter's Five Forces

A framework for analyzing the competitive forces within an industry, including competition, potential entrants, substitute products, bargaining power of suppliers, and bargaining power of customers.

WAN

A Wide Area Network is a telecom network that spans a vast geographic area, mainly designed for connecting computers.

LAN

A Local Area Network is a computer network that interconnects computers within a limited area such as a residence, school, laboratory, or office building.