Assume Russo's Has a Debt-Equity Ratio of

Multiple Choice

Assume Russo's has a debt-equity ratio of .4 and uses the capital asset pricing model to determine its cost of equity. As a result, the company's cost of equity:

A) is affected by the firm's rate of growth projections.
B) implies that the firm pays out all of its earnings to its shareholders.
C) is dependent upon a reliable estimate of the market risk premium.
D) would be unaffected if the dividend discount model were applied instead.
E) will be unaffected by changes in overall market risks.