Question

The cost of raising capital through retained earnings is the cost of raising capital through issuing new common stock. The cost of equity using the CAPM approach The yield on a three-month T-bill is 3.12%, and the yield on a 10-year T-bond is 4.23%, the market risk premium is 5.75%. The Monroe Company has a beta of 0.78. Using the Capital Asset Pricing Model (CAPM) approach, Monroe's cost of equity is The cost of equity using the bond yield plus risk premium approach The Kennedy 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. Kennedy's bonds yield 10.28%, and the firm's analysts estimate that the firm's risk premium on its stock over its bonds is 3.55%. Based on the bond-yield-plus-risk-premium approach, Kennedy's cost of internal equity is: 17.29% 13.839 13.14% 16.60% The cost of equity using the discounted cash flow (or dividend growth) approach Tucker Enterprises's stock is currently selling for $32.45 per share, and the firm expects its per-share dividend to be $1.38 in one year. Analysts project the firm's growth rate to be constant at 5.72%. Using the cost of equity using the discounted cash flow (or dividend growth) approach, what is Tucker's cost of internal equity? 13.46% 9.97% 9.47% 12.45%

Answer 1

1st dropdown Less than Cost of equity 7.61% =3.12%+0.78*5.75% Cost of internal equity 13.83% -10.28%+3.55% Cost of internal equity | 9.97% -1.38/32.45+5.72%

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