1) True or False: It is free for a company to raise money through retained earnings, because retained earnings represent money that is left over after dividends are paid out to shareholders.

Option A: True

Option B: False

2) The current risk-free rate of return is 4.60% and the current market risk premium is 5.70%. Green Caterpillar Garden Supplies Inc. has a beta of 0.87. Using the Capital Asset Pricing Model (CAPM) approach, Green Caterpillars cost of equity is

Option A: 12.43%

Option B: 10.04%

Option C: 10.52%

Option D: 9.56%

3) Cute Camel Woodcraft Company is closely held and, as a result, cannot generate reliable inputs for the CAPM approach. Cute Camels bonds yield 10.20%, and the firms analysts estimate that the firms risk premium on its stock relative to its bonds is 3.50%. Using the bond-yield-plus-risk-premium approach, the firms cost of equity is

Option A: 15.07%

Option B: 17.13%

Option C: 13.70%

Option D: 16.44%

4) The stock of Cold Goose Metal Works Inc. is currently selling for $25.67, and the firm expects its dividend to be $1.38 in one year. Analysts project the firms growth rate to be constant at 5.70%. Using the discounted cash flow (DCF) approach, Cold Gooses cost of equity is estimated to be

Option A: 11.08%

Option B: 13.85%

Option C: 11.63%

Option D: 14.96%