5. The cost of retained earnings The cost of retained earnings True or False: It is free for a company to raise money through retained earnings, because retained earnings represent money that is left over after dividends are paid out to shareholders. False True The cost of equity using the CAPM approach The yield on a three-month T-bilt is 4%, the yield on a 10-year T-bond is 5.36%. The market risk premium is 10,18% and the Roosevelt Comparty has a beta of 1.25. 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 In contrast, the Jackson Company is closely held and therefore, cannot generate reliable inputs with which to apply the CAPM method to estimates cost of internal equity (retained earnings). However, its management knows that its outstanding bords are currently vielding 12.31, and the time analysts estimate that the risk premium of its stocks over its bonds is currently 2,31%. As result Jackson's cost of internal equity (r.)-based on the own-bond-yield-plus judgemental-risk-premium approach-s. 14.62%