Assume for now that Coleman Corp. does not plan to issue new shares of common stock. Find Colemans estimate cost of equity using: (a) the CAPM approach; (b) the dividend growth approach; and (c) the own-bond-yield-plus-judgmental-risk-premium method. What is your final estimate for the cost of equity, rs? Is this the cost of retained earnings or the cost of newly issued common stock? Why is there a cost associated with retained earnings?

Colemans common stock is currently selling at $50 per share. Its last dividend (D0) was $4.19, and dividends are expected to grow at a constant rate of 5% in the foreseeable future. Colemans beta is 1.2, the yield on T-bonds is 7%, and the market risk premium is estimated to be 6%. For the own-bondyield-plus-risk-premium approach, the firm uses a 4% judgmental risk premium.