Manag., January-2017-Q16
0. The cost of external equity can be most appropriately computed as per the
- Option : D
- Explanation : A popular approach to estimating the cost of equity is the capital asset pricing model (CAPM) relationship. According to the CAPM, the required return on a company’s equity is: Risk-free rate + Beta × Market risk premium. Analysts who do not have faith in the CAPM approach often resort to a subjective procedure to estimate the cost of equity. They add a judgemental risk premium to the observed yield on the long-term bonds of the firm to get the cost of equity.
