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:

Valence Electrons

The electrons in the outermost shell of an atom, which determine the atom's chemical properties and its ability to form bonds.

Hydrogen Bonds

Weak bonds between a hydrogen atom in one molecule and an electronegative atom (often oxygen or nitrogen) in another, important in the structure of water and DNA.

Carbon Atom

The fundamental chemical element with symbol C, essential to all known life forms and the basis of organic chemistry.

Carboxyl Group

A weakly acidic functional group; abbreviated —COOH.