When Estimating the Cost of Equity by Use of the DCF

question 6

True/False

When estimating the cost of equity by use of the DCF method,the single biggest potential problem is to determine the growth rate that investors use when they estimate a stock's expected future rate of return.This problem leaves us unsure of the true value of r_s.

---

Definitions:

Production Function

An economic model that describes the relationship between inputs used in production and the output of goods or services.

Marginal Cost

The extra expense associated with manufacturing an additional unit of a product or service.

Variable Cost

Expenses that fluctuate based on the level of production or the amount of output.

Total Cost

The complete cost of producing a specific quantity of output, including both fixed and variable costs.