Question

The major components that determine the risk premium on a specific security at any point in time include all of the following except

a. interest rate risk

b. business risk

c. financial risk

d. real rate of return risk

If a firm sells assets, generating cash flows, the cost of these funds is ____.

a. the firm's cost of cash flows

b. the firm's weighted cost of capital

c. zero

d. the firm's cost of equity

Which of the following statements (if any) is (are) true concerning companies that do not pay dividends?

a. The cost of equity capital cannot be determined by using the CAPM, the risk premium on debt approach, or by estimating ke for comparable dividend-paying stocks in their industry.

b. The dividend capitalization model can be used to determine an accurate cost of equity capital.

c. The cost of equity capital is equal to the growth short-term rate of earnings per share.

d. The cost of equity capital can be estimated using the Capital Asset Pricing Model.