Which of the Following Statements Is Correct

question 79

Multiple Choice

Which of the following statements is correct?

• A)The discounted cash flow method of estimating the cost of equity cannot be used unless the growth rate, g, is expected to be constant forever.
• B)If the calculated beta underestimates the firm's true investment risk, i.e., if the forward-looking beta that investors think exists exceeds the historical beta, then the CAPM method based on the historical beta will produce an estimate of r_s and thus a WACC that is too high.
• C)Beta measures market risk, which is the most relevant risk measure for a publicly owned firm that seeks to maximize its intrinsic value. This is true even if not all of the firm's stockholders are well diversified.
• D)The specific risk premium used in the CAPM is the same as the risk premium used in the bond-yield-plus-risk-premium approach.

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Definitions:

Continuous Reinforcement

A learning process in operant conditioning where a behavior is rewarded every time it is performed.

Conditioned Reinforcement

A process in which a previously neutral stimulus becomes reinforcing through its association with a primary reinforcer.

Primary Reinforcement

A stimulus that is inherently rewarding for an individual, such as food, water, or relief from pain.

Latent Learning

The acquisition of knowledge that only becomes apparent when a person has an incentive to display it.