When estimating the cost of equity by use of the dividend growth method, the single biggest potential problem is to determine the growth rate that investors use when they estimate a stock's expected future rate of return.This problem leaves us unsure of the true value of r_s.

Question

Quizplus · Accepted Answer

This is true because the growth rate is based on assumptions and can be difficult to predict accurately, leading to uncertainty in estimating the cost of equity.

When Estimating the Cost of Equity by Use of the Dividend