At the present time, Water and Power Company (WPC) has 15-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,555.38 per bond, carry a coupon rate of 11%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 25%. If WPC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? (Note: Round your YTM rate to two decimal place.) 4.73% 3.29% 4,93% 4.119 ASSN 31: The Cost of Capital 4. The cost of retained earnings The cost of raising capital through retained earnings is less than the cost of raising capital through issuing new common stock. The cost of equity using the CAPM approach The current risk-free rate of return (Rp) is 4.23% while the market risk premium is 6.63%. The Allen Company has a beta of 1.56. Using the capital asset pricing model (CAPM) approach, Allen's cost of equity is The cost of equity using the bond yield plus risk premium approach The Adams Company is closely held and, therefore, cannot generate reliable inputs with which to use the CAPM method for estimating a company's cost of internal equity, Adams's bonds yield 11.52%, and the firm's analysts estimate that the firm's risk premium on its stock over its bonds is 5.89. Based on the bond-yield-plus-risk-premium approach, Adams's cost of internal equity is: 17.41% 16.54% 21.76% 19.15%