Which of the Following Statements Is Correct

question 6

Multiple Choice

Which of the following statements is correct?

• A) Under normal conditions,the CAPM approach to estimating a firm's cost of retained earnings gives a better estimate than the DCF approach.
• B) The CAPM approach is typically used to estimate a firm's flotation cost adjustment factor,and this factor is added to the DCF cost estimate.
• C) The risk premium used in the bond-yield-plus-risk-premium method is the same as the one used in the CAPM method.
• D) In practice (as opposed to in theory),the DCF method and the CAPM method usually produce exactly the same estimate for r_s.
• E) The above statements are all false.

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