When estimating the cost of equity by using the bondyieldplu

When estimating the cost of equity by using the bond-yield-plus-risk-premium method, you get a good idea of the interest rate on new long-term debt, but you cannot be sure that the risk premium you add is appropriate. This problem leaves you unsure of the true value of rs.

True

False

Solution

True.

BYPRP approach can be used if the entity has publicly traded debt, Determine the bond yield. This is the effective interest on a company\'s long-term debt.

Equityrisk premium estimates can be highly inaccurate, while also varying wildly depending on which model is used. It can be very difficult to get an accurate estimate of the risk premium on an equity.