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2) The Jackson Company is closely held and, therefore, cannot generate reliable inputs with which to...

2) The Jackson Company is closely held and, therefore, cannot generate reliable inputs with which to use the CAPM method for estimating a company’s cost of internal equity. Jackson’s bonds yield 11.52%, and the firm’s analysts estimate that the firm’s risk premium on its stock over its bonds is 5.89. Based on the bond-yield-plus-risk-premium approach, Jackson’s cost of internal equity is:

a) 19.15%

b) 16.54%

c) 17.41%

d) 21.76%

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Answer #1

Based on the bond-yield-plus-risk-premium approach, Jackson’s cost of internal equity is :

cost of internal equity = bond yield + risk premium = 11.52% + 5.89% = 17.41%

Answer : C) 17.41% (Thumbs up please)

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