1. The current risk-free rate of return (rRF) is 3.86%, while the market risk premium is 5.75%. the Allen Company has a beta of 1.56. Using the Capital Asset Pricing Model (CAPM) approach, Allens cost of equity is

2.

The Harrison Company is closely held and, therefore, cannot generate reliable inputs with which to use the CAPM method for estimating a companys cost of internal equity. Harrisons bonds yield 10.28%, and the firms analysts estimate that the firms risk premium on its stock over its bonds is 5.89%. Based on the bond-yield-plus-risk-premium approach, Harrisons cost of internal equity is:

16.17%

19.40%

20.21%

15.36%

3.

Tucker Enterprisess stock is currently selling for $32.45 per share, and the firm expects its per-share dividend to be $2.35 in one year. Analysts project the firms growth rate to be constant at 5.72%. Using the cost of equity using the discounted cashflow (or dividend growth) approach, what is Tuckers cost of internal equity?

16.20%

17.50%

12.31%

12.96%

Suppose Tucker is currently distributing 40.00 of its earnings in the form of cash dividends. It has also historically generated an average return on equity (ROE) of 18.00. Tuckers estimated growth rate is .