Cost of equity to not-for-profit businesses is most correct

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Reference no: EM131952752

1. Which one of the following statements is most correct & why?

A) The expected growth rate is the least difficult of the DCF model parameters to estimate.

B) The DCF method can be used to estimate the expected rate of return on equity for companies that issue dividends

C) The constant growth model parameters include (1) the current stock price, (2) the last dividend payment, and (2) the expected inflation rate

D) The DCF model can be used to estimate the expected rate of return of any company

2. Which of the following statements about the cost of equity to not-for-profit businesses is most correct?

A) The cost of equity is the return available on short-term investments (marketable securities).

B) The cost of equity is the greater of the return required to support asset growth or to maintain the desired bond (debt) rating

C) A cost-of-equity estimate is not needed, because not-for-profit businesses are not required to estimate a cost of capital.

D) The cost of equity is the same as the cost to similar for-profit businesses plus 3-5 percentage points to account for not-for-profit status.

Reference no: EM131952752

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