When Estimating the Cost of Equity by Use of the DCF

question 6

True/False

When estimating the cost of equity by use of the DCF method,the single biggest potential problem is to determine the growth rate that investors use when they estimate a stock's expected future rate of return.This problem leaves us unsure of the true value of r_s.

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Definitions:

Guthrie

Refers to Edwin Ray Guthrie, a psychologist known for his contiguity theory of learning which posits that a combination of stimuli and responses, being contiguous in time, becomes associated.

Single-Trial Learning

The process by which an association or response is learned in one exposure to a stimulus.

Tolman

Edwin C. Tolman was an American psychologist who made significant contributions to the study of learning and motivation in what came to be known as cognitive maps.

Demand

The desire or need for products, services, or resources combined with the ability and willingness to pay for them.