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Basic Question 1 of 4

The typical build-up model for estimating the cost of common equity capital may consist of all of the following components EXCEPT:

I. A risk-free rate.
II. Beta.
III. A general equity risk premium.
IV. A size premium.

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Edward Liu

Edward Liu

Learning Outcome Statements

calculate the value of a private company using free cash flow, capitalized cash flow, and/or excess earnings methods;

explain factors that require adjustment when estimating the discount rate for private companies;

compare models used to estimate the required rate of return to private company equity (for example, the CAPM, the expanded CAPM, and the build-up approach);

CFA® 2024 Level II Curriculum, Volume 4, Module 27.