2) Which one of the following statements related to the capital asset pricing model approach to equity valuation is correct? Assume the firm uses debt in its capital structure. |
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A The model generally produces the same cost of equity as the dividend growth model. |
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B The model is dependent upon a reliable estimate of the market risk premium. |
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C This approach generally produces a cost of equity that equals the firm's overall cost of capital. |
D The model applies only to non-dividend-paying firms.
Answer: D Yen 78614
| 1 $ | Yen 102.36 |
| 1$ | SKr 6.5103 |
| Yen/ SKr = Yen/ $ * $/SKr | |
| Yen/ SKr = 102.36 * (1/6.5103) | |
| 1 SKr = Yen (102.36/6.5103) | |
| 5000 SKr = Yen (5000*(102.36/6.5103)) | |
| 5000 SKr = Yen 78614 |
Answer (B)
The model is dependent upon a reliable estimate of the market risk premium.
capital asset pricing model approach to equity valuation
Requited Return = Risk Free Rate+ Beta*Market Risk Premium
1) Assume ¥102.36 equal $1. Also assume that SKr6.5103 equal $1. How many Japanese yen can...