question archive A firm has a return on equity of 12
A firm has a return on equity of 12
Subject:FinancePrice: Bought3
A firm has a return on equity of 12.4% according to the dividend growth model and a return of 18.7% according to the capital asset pricing model. The market rate of return is 13.5%. What rate should the firm use as the cost of equity when computing the firm's weighted average cost of capital (WACC)?
Select one:
a. 12.4% because it is lower than 18.7%
b. 18.7% because it is higher than 12.4%
c. The arithmetic average of 12.4% and 18.7%
d. The arithmetic average of 12.4%, 13.5% and 18.7%
e. 13.5%
