Among the two models Constant Dividend Growth Model (CDGM) and Capital Asset Pricing Model (CAPM), which is a better method for computation of the cost of equity?
What will be an ideal response?
Answer: The Capital Asset Pricing Model (CAPM) is more popular for estimating the cost of equity because of the difficulties in estimating the dividend growth rate required for the Constant Dividend Growth Model (CDGM).
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A firm with unpredictable cash flows is trying to set upper and lower limits for cash balances. Which of the following factors will result in upper and lower limits being closer to each other?
A) cost of trading securities is high B) interest rate is low C) current cash balance is low D) variance of the cash flows is low
Which statement regarding counteroffers is NOT true?
a. A counteroffer serves as a rejection of an offer. b. If the counteroffer is not accepted, the owner has the option of accepting the original offer. c. A counteroffer turns the original offeree (the owner) into an offeror. d. Both a and c.