Attempts: Keep the Highest: 14 4. The cost of retained earnings If a firm cannot invest retained earnings to earn a rate of retum should return those funds to its stockholders. the required rate of return on retained earnings The cost of equity using the CAPM approach The current risk-free rate of return () is 3.86% while the market risk premium is 6.63%. The Roosevelt Company has a beta of 0.92. 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 The Jackson 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 Jackson's bonds yield 10.28%, and the firm's analysts estimate that the firm's risk premium on its stock over it bonds is 4.95%. Based on the bond-yield-plus-risk-premium approach, Jackson's cost of internal equity le 19.04 0: Assignment - The Cost of Capital Tyler's cost of internal equity? O 13.46% 9.47% 12.46% 9.97% Estimating growth rates It is often difficult to estimate the expected future dividend growth rate for use in estimating the cost of existing equilty using the DCF or DG spro In general, there are three avaliable methods to generate such an estimates Carry forward a historical realized growth rate, and apply it to the future Locate and apply an expected future growth rate prepared and published by security analysis Use the retention growth model Suppose Tyler currently distributing of its earrings in the form of cash dividends. It has a historically generated an average return on equity (ROE) of 22% Tyler's estimated growth