In Calculating the Cost of Common Stock Equity, ________

question 12

Multiple Choice

In calculating the cost of common stock equity, ________.

• A) the use of the capital asset pricing model (CAPM) is often preferred, because the data required are more readily available
• B) the use of the CAPM is preferred, because it directly considers risk and the effect of inflation on the stock prices
• C) the use of the constant-growth valuation model is often preferred, because the data required are more readily available
• D) the use of the constant-growth valuation model is often preferred, because it has a stronger theoretical foundation

Recognize the impact of investment in capital goods on economic growth in DVCs.

Appreciate the role of human resources and entrepreneurial efforts in economic development.

Analyze the challenges of population expansion and capital flight in DVCs.

Understand the advantages of infrastructure development in the early stages of economic development.

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Definitions:

Dividend Restriction Clause

A provision in a contract that limits or restricts the ability of a company to pay dividends to its shareholders.

Sinking Fund Clause

A provision in a bond contract that requires the issuer to periodically set aside funds to retire a portion of the debt before it matures.

Inflation-Indexed Treasury Securities

Government bonds that are adjusted for inflation to protect investors from the decline in purchasing power.

TIPS

Treasury Inflation-Protected Securities, a type of U.S. government bond designed to help protect investors from inflation, as the principal value adjusts with inflation.