If a Firm Is Privately Owned, and Its Stock Is

question 22

True/False

If a firm is privately owned, and its stock is not traded in public markets, then we cannot measure its beta for use in the CAPM model, we cannot observe its stock price for use in the dividend growth model, and we don't know what the risk premium is for use in the bond-yield-plus-risk-premium method.All this makes it especially difficult to estimate the cost of equity for a private company.

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Definitions:

Functional Chimney Problem

Issues arising from the organizational structure that result in departments or functions operating in silos, hindering interdepartmental communication and cooperation.

Functional Silos Problem

A situation where departments within an organization operate in isolation from one another, which can hinder overall performance and efficiency.

Informal Groups

Social groups that form naturally within the workplace or social contexts, based on personal relationships and common interests, rather than being formally organized.

Social Satisfaction

Social satisfaction refers to the extent to which individuals feel contented and fulfilled with their relationships and interactions within their social circle and community.