All of the Following Methods Can Be Used to Estimate

question 111

Multiple Choice

All of the following methods can be used to estimate the cost of equityare correct except:

• A)Like debt and preferred stock, cash flows from common equity are fixed.
• B)Firms have two sources of common equity, retained earnings and new stock issues, and thus two costs of common equity.
• C)From the shareholders' perspective, the opportunity cost of retained earnings is the return the shareholders could earn by investing the funds in assets whose risk is similar to that of the firm.
• D)If the firm cannot invest its retained earnings to achieve a sufficient risk-adjusted return, shareholders would be better off receiving 100 percent of its net income as dividends.
• E)All of the above statements are correct.

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Definitions:

Loss On Sale

An economic condition wherein the selling price of an asset is less than its carrying value, resulting in a financial loss.

Total Assets

The total value of everything a company owns, including both current and non-current assets.

Net Income

The total earnings of a company after subtracting all expenses from revenue.

Accumulated Depreciation

Represents the total depreciation expense allocated to a fixed asset since its purchase, reducing its book value over time.