If a Firm Is Privately Owned,and Its Stock Is Not

question 18

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 DCF 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:

Rent

A periodic payment made by a lessee to a lessor for the use of land, buildings, or other property.

Supply

The total amount of a specific good or service that is available to consumers at current prices.

Supply Curve

A graphical representation showing the relationship between the price of a good and the quantity of the good that suppliers are willing to sell.

Inelastic

Describing a situation in which the demand or supply of a good or service is relatively unresponsive to changes in price.