4. The cost of retained earnings If a firm cannot invest retained earings to eam a rate of retum should return those funds to its stockholders. the required rate of return on retained earnings, it The cost of equity using the CAPM approach The current risk-free rate of return (PRP) is 3.85% while the market risk premium I 6.63%. The D'Amico Company has a beta of 1.56. Using the capital asset pricing model (CAPM) approach, D'Amico's cost of equity is The cost of equity using the bond yield plus risk premium approach The Taylor Company is closely held and, therefore, cannot generate reliable inputs with which to use the CAPM method for estimating a company cost of Internal equity. Taylor's bonds yielo 10.28%, and the firm's analyses estimate that the timnisk premium on ts stock over its bonds is 5.89. Based on the bond-yield-plus-risk.premium approach, Taylor's cost of intema equity 20.21% 15.36% 19.40% 16.1296