The Cost of Equity for a Firm

question 13

Multiple Choice

The cost of equity for a firm:

• A)tends to remain static for firms with increasing levels of risk.
• B)increases as the unsystematic risk of the firm increases.
• C)ignores the firm's risks when that cost is based on the dividend growth model.
• D)equals the risk-free rate plus the market risk premium.
• E)equals the firm's pretax weighted average cost of capital.

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Definitions:

IRR Rule

A decision-making tool used in finance to evaluate investments, stating that a project is acceptable if its internal rate of return exceeds a predetermined threshold.

Internal Rate

NO. However, closely related term Internal Rate of Return (IRR) is a metric used in financial analysis to estimate the profitability of potential investments.

Present Value

The value today of a sum promised at a specified time in the future given a rate of interest. The amount that would have to be deposited today at the specified interest rate to grow into the promised sum on the specified date.

Cash Inflows

Money or funds coming into a business from various sources, including sales, investments, financing, and operational activities.