Which of the Following Estimation Errors Would Result in a Market

question 38

Multiple Choice

Which of the following estimation errors would result in a market value that would have been too high?

• A)The growth rate used was too low.
• B)The estimated firm beta was too low.
• C)The cost of capital used was too high.
• D)The expected equity risk premium used was too high.

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Definitions:

Trade Discount

A reduction in the listed price of a product or service offered by sellers to buyers in the business-to-business sales.

Break-Even Default Rate

The rate at which the losses from defaulted loans equal the income generated from interest payments in a lending portfolio.

Net 30 Credit Policy

A common credit term indicating that payment is due in full 30 days after the goods are dispatched or a service is completed.

Monthly Interest Rate

The rate of interest applied to a loan or earned from an investment throughout a one-month timeline.