In estimating a firm's earnings multiplier, finding the firm's required rate of return involves analyzing the firm's fundamental risk characteristics. Which of the following is not considered a fundamental risk?
Click on the arrows to vote for the correct answer
A. B. C. D. E. F.F
In addition to the consideration of fundamental factors, one should consider market-determined risk (beta) based on the CAPM. A low beta combined with below- average fundamental risk, for example, would indicate that the firm's risk is quite low compared to the aggregate market. This means that the risk premium and the required rate of return for this firm should be lower than the market. By itself, this lower required rate of return would suggest an earnings multiplier above the market multiplier.