Which of the following approaches is not typically used to d

Which of the following approaches is not typically used to develop the cost of equity for a large, publicly traded company?

Solution

CORRECT ANSWER : C : THE BUILD UP APPROACH

The build-up model adds up different risk premiums on risk free assets to obtain the required rate of return. The build-up model does not include any factor sensitivity, and therefore no betas are required to estimate returns on stocks

this model is more suitable for valuing privately held businesses. Because of their nature, such companies may need some adjustments, which is easily done through adding risk premiums by using this model.