To Estimate the Cost of Equity Capital for a Firm

question 24

Multiple Choice

To estimate the cost of equity capital for a firm using APT or CAPM, it is necessary to have:

• A) company financial leverage, beta, and the market risk premium.
• B) company financial leverage, beta, and the risk-free rate.
• C) beta, company financial leverage, and the industry beta.
• D) beta, company financial leverage, and the market risk premium.
• E) beta, the risk-free rate, and the market risk premium.

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Definitions:

Monopolistic Competition

A market structure characterized by many firms selling products that are similar but not identical, leading to competition based on factors other than price.

Pure Competition

A market structure characterized by an extremely large number of sellers, none of which can significantly influence price or market conditions due to the homogeneity of the product being sold.

Pure Monopoly

A market structure characterized by a single seller selling a unique product in the market. In a pure monopoly, the single seller controls the entire market supply and sets the price.

Demand Schedule

A table or graph showing the quantity of a good or service that consumers are willing and able to purchase at various prices.