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4. The cost of retained earnings If a firm cancot invest retained earnings to earn a rate of return the required rate of return on retained earnings, it should return those funds to its stockholders. The cost of equity using the CAPM approach The current risk-free rate of return (nus) is 3.86% whle thit market risk premium is 5.75%. The Roosevelt Company has a beta of 0.92 . Using the captal asset pricing model (CAPM) approoch, Roosevelt's cost of equity is The cost of equity using the bond vield plus risk premium approach The Harrison Company is olosely held and, therefore, cannot generate relisbie inputs with which to use the CAPM method for estimating a company's cost of internal equity. Harrison's bonds yield 10.28%, and the firm's analysts estimate that the firm's risk premium on its stock over its bonds is 4.95\%. Based on the bond-yleld-plus-risk-prensum approuch, Harrison's cost of internal equity is: 16.75% 1+474 15.23% 18.284