C214 FINANCIAL MANAGEMENT Topic 9.1 Cost of Common Equity Introduction

9.1 Cost of Common Equity Introduction
Assessment Section 1
1
1/1
According to a survey by Graham and Harvey (2001), the dividend discount (Gordon) model
is more widely used by firms to calculate the cost of common equity than the capital asset
pricing model.

 True
 Correct


False

The CAPM is the most popular, with over 70% of firms using it.

2
1/1
According to a survey by Graham and Harvey (2001), the capital asset pricing model is the
most widely used method for calculating the cost of common equity.

 Correct


True

 False

According to the survey by Graham and Harvey, the CAPM was found to be the most
popular method for calculating the cost of common equity among CFOs.

3
1/1
The cost of common equity is defined as the return required by equity investors.

 Correct


True

 False

From the firm’s point of view, it is called the cost of common equity, and from the investors’
point of view, it can be thought of as the required return.

, 4
0/1
According to the survey of nearly 400 chief financial officers discussed in the topic, which of
the following methods do firms use as methods of calculating the cost of common equity?

 Arithmetic mean
 Dividend discount (Gordon) model
 You Selected


Capital asset pricing model

 Correct


All of these choices

The survey showed that firms use all three of these methods, among others.

5
0/1
Which method of computing the cost of common equity uses the formula Re = Kcs = D1/P0 + g?

 You Selected


Perpetuity dividend model

 Arithmetic mean
 Capital asset pricing model
 Correct


Dividend discount (Gordon) model

This is the equation for the Gordon growth model.

6
1/1
Which method of computing the cost of common equity uses the formula Re = E[R] = Rf +
β(E[Rm] − Rf)?

 Dividend discount (Gordon) model
 Arithmetic mean
 Correct


Capital asset pricing model

 Perpetuity dividend model