4. The cost of retained earnings The cost of raising capital through retained earnings is the cost of raising capital through issuing new common stock. 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 1.56. Using the Capital Asset Pricing Model (CAPM) approach, Green Caterpillar's cost of equity is Cute Camel Woodcraft Company is closely held and, as a result, cannot generate reliable inputs for the CAPM approach. Cute Camel's bonds yield 10.20%, and the firm's analysts estimate that the firm's risk premium on its stock relative to its bonds is 3.50%. Using the bond-yield-plus-risk- premium approach, the firm's cost of equity is 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 firm's growth rate to be constant at 7.20%. Using the discounted cash flow (DCF) approach, Cold Goose's cost of equity is estimated to be