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What are the possible challenges in the real world to estimate Cost of Equity using either CAPM or DDM? What is the effect on your

  1. What are the possible challenges in the real world to estimate Cost of Equity using either CAPM or DDM?
  2. What is the effect on your firm's ROE and EPS if you increase your leverage? Discuss the pros and cons of financial leverage.
  3. According to MM with taxes, the value of the firm is maximized by taking on as much debt as possible. Can you find a real-world company (excluding financial institutions) with 100% or more debt financing? What are the challenges you may face when you run a company in the real world?

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