The Cost of Equity for a fiRm Is

question 108

Multiple Choice

The cost of equity for a firm is:

• A) Determined by directly observing the rate of return required by equity investors.
• B) Based on estimates derived from financial models.
• C) Equivalent to a leveraged firm's cost of capital.
• D) Equal to the risk-free rate of return plus the market risk premium.
• E) Equal to the risk-free rate of return plus the dividend growth rate.

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Definitions:

Private Cost

The cost incurred by an individual or company in producing goods or services, excluding externalities.

Private Value

The value of a good or service to an individual buyer or seller which is independent of the market price or the value others might derive from it.

Externalities

Results of business activities on external entities not considered in the product or service's price.

Cars And Trucks

General categories of motor vehicles primarily used for transportation of people (cars) and goods (trucks).