12. The cost of retained earnings Aa Aa E the cost of raising capital through issuing The cost of raising capital through retained earnings is new common stock. The cost of equity using the CAPM approach The current risk-free rate of return (PRF) is 3.86%, while the market risk premium is 6.63%. the Roosevelt Company has a beta of 0.78. Using the Capital Asset Pricing Model (CAPM) approach, Roosevelt's cost of equity is The cost of equity using the bond yield plus risk premium approach The Harrison 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. Harrison's bonds yield 11.52%, 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, Harrison's cost of internal equity is: 0 0 O O 16.58% 14.32% 18.08% 15.07% The cost of equity using the discounted cashflow (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 $2.35 in one year. Analysts project the firm's growth rate to be constant at 7.27%. Using the cost of equity using the discounted cashflow (or dividend growth) approach, what is Tucker's cost of internal equity? O 18.14% 13.78% O 14.51% O 19.59% Estimating growth rates It is often difficult to estimate the expected future dividend growth rate for use in estimating the cost of existing equity using the DCF or DG approach. In general, there are three available methods to generate such an estimate: Carry forward a historical realized growth rate, and apply it to the future. Locate and apply an expected future growth rate prepared and published by security analysts. Use the retention growth model. Suppose Tucker is currently distributing 45.00 of its earnings in the form of cash dividends. It has also historically generated an average return on equity (ROE) of 24.00. Tucker's estimated growth rate is 11. Cost of preferred stock Aa Aa E Preferred stock is a hybrid security, because it has some characteristics typical of debt and others typical of equity. The following table lists various characteristics of preferred stock. Determine which of these characteristics is consistent with debt and which is consistent with equity. Characteristics Debt Equity Usually has no voting rights. No tax adjustments are made when calculating the cost of preferred stock. Consider the case of Bogdan Enterprises: At the present time, Bogdan Enterprises does not have any preferred stock outstanding but is looking to include preferred stock in its capital structure in the future. Bogdan has found some institutional investors that are willing to purchase its preferred stock issue provided that it pays a perpetual dividend of $14 per share. If the investors pay $130.45 per share for their investment, then Bogdan's cost of preferred stock (rounded to four decimal places) will be