You Are Trying to Determine the Cost of Equity for a Publicly

question 105

Multiple Choice

You are trying to determine the cost of equity for a publicly traded company.Which of the following is least useful?

• A)The 3-month Treasury bill rate
• B)The risk premium on the market
• C)The historical beta for the firm
• D)The expected rate of return on a stock of similar risk

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Definitions:

Collateral

An asset that a borrower offers to a lender as security for a loan, which can be seized if the loan is not repaid.

Accruals

Accounting adjustments for revenues that have been earned or expenses that have been incurred but not yet recorded.

Level of Operations

Refers to the scale of production or business activity, indicating the degree to which a company utilizes its resources.

Factoring

Factoring is a financial transaction where a business sells its accounts receivable to a third party (the factor) at a discount, to raise immediate capital.