The Required Rate of Return on Equity Is the Most

question 42

Multiple Choice

The required rate of return on equity is the most appropriate discount rate to use when applying a ______ valuation model.

• A)FCFE
• B)FCEF
• C)DDM
• D)B or C
• E)P/E

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Definitions:

Anticipated Growth Rate

The expected rate at which a company, asset, or economy is predicted to grow over a certain period of time.

Free Cash Flow

The amount of cash generated by a company after accounting for operating expenses and capital expenditures.

Market Capitalization Rate

The market-consensus estimate of the appropriate discount rate for a firm’s cash flows.

Corporate Tax Rate

The tax imposed on the net income of a corporation, varying by country and sometimes within jurisdictions of countries.