16. TGC Company hired your consulting firm to help them estimate the cost of equity. The yield on the firm's bonds is 7.00%, and your firm's economists believe that the cost of equity can be estimated using a risk premium of 4.15% over a firm's own cost of debt. What is an estimate of the firm's cost of equity from retained earnings? A) 2.85% B) 2.95% C) 4.15% D) 9.15% E) 11.15% 17. Which of the following is NOT a way of determining the cost of common equity? A) The Capital Asset Pricing Model (CAPM) B) The Discounted Cash Flow Approach (DCF) C) Calculating the ratio of preferred dividend to preferred share price D) The Bond Yield Plus Risk Premium Approach E) The Discounted Cash Flow Approach with zero growth (DCF) 18. It is cheaper for a firm to use retained earnings than to issue new common stock because A) interest on debt is not tax-deductible B) flotation costs are incurred on new issues C) dividends are tax-deductible D) dividends are not tax-deductible E) interest on debt is tax-deductible 19. New common stock issuance usually A) sends a negative signal to the market and lowers the common share price B) sends a positive signal to the market and raises the common share price C) causes the existing bondholders to raise their interest rates D) causes the existing bondholders to lower their interest rates E) causes the existing preferred shareholders to raise their preferred dividends 20. An increase in the nominal risk-free rate has which of the following effects? A) No cffect on the WACC B) A decrease in the WACC C) An increase in the WACC D) An unknown effect on the WACC E) An unpredictable effect on the WACC 21. An increase in the maturity risk premium is most likely to directly A) increase the firm's cost of equity from retained earnings B) increase the firm's long-term cost of new debt C) increase the firm's cost of existing preferred shares D) decrease the firm's cost of equity from retained earnings E) decrease the firm's cost of existing preferred shares