If a Firm Is Privately Owned,and Its Stock Is Not

question 18

True/False

If a firm is privately owned,and its stock is not traded in public markets,then we cannot measure its beta for use in the CAPM model,we cannot observe its stock price for use in the DCF model,and we don't know what the risk premium is for use in the bond-yield-plus-risk-premium method.All this makes it especially difficult to estimate the cost of equity for a private company.

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Definitions:

Negotiated Settlement

An agreement reached through negotiation between parties to resolve a dispute, without going to trial.

Regulation Violation

The act of breaking the rules established by laws or regulatory bodies, which can result in penalties or legal action.

Freedom of Information Act

A law that allows for the full or partial disclosure of previously unreleased information and documents controlled by the government.

Trade Secrets

Information, including formulas, practices, processes, designs, instruments, or patterns, that is not generally known and gives a business a competitive advantage.