A firm's cost of retained earnings, or internal equity, can be estimated using a variety of methods. Match the formula and/or the term to its corresponding description.

A firm's cost of retained earnings, or internal equity, can be estimated using a variety of methods. Match the formula and/or the term to its corresponding description. Estimation method Description Formula The cost is calculated by Bond-yield-plus-risk-premium approach discounting the stock's expected Capital Asset Pricing Model approach future cash flows from dividends Discounted cash flow approach and capital gains. Bond-yield-plus-risk-premium approach This method assumes that the firm's cost of equity is related to its cost of debt. The cost is calculated as the sum rs rRF BS (rM rRF) of the market's risk-free rate and the product of the stock's beta coefficient and the market's risk premium