Which of the Following Methods of Estimating the Cost of Common

question 80

Multiple Choice

Which of the following methods of estimating the cost of common equity for a firm treats risk explicitly?

• A) DCF method.
• B) CAPM method.
• C) Composite method.
• D) Bond-yield-plus-risk-premium method.
• E) Answers b and d are both correct.

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Definitions:

Probability of the Statistic

The likelihood of observing a test statistic as extreme as, or more extreme than, the value observed under the assumption that the null hypothesis is true.

5%

A common significance level in statistical analysis, indicating that there is a 5% chance the observed results could have occurred by random chance, used to determine statistical significance.

Sample Size

Sample size refers to the number of observations or subjects used in a statistical study.

Research Hypothesis

Posits an expected causation, correlation, or difference between studied variables, formulated for scientific testing and verification.