Ch 10. Assignment - The Cost of Capital Back to Assignment Attempts: Average: 5 4. 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, O False True The cost of equity using the CAPM approach The current risk-free rate of retur (ru) is 4.23% while the market risk premium is 6.17%. The Manre Company has a beta of 0.78. Using the capital asset pricing model (CAPM) approach, Monroe'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 rate 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 analysts estimate that the risk premium on stock over its bonds is 3.55%. Based on the bond vield-plus-risk premium coroach, Adams's cost of internal equity is: 16.50% 14.32 18.08 15.07% The cost of equity using the discounted cash flor de Ch 10. Assignment. The cost of Capital The cost of equity using the discounted cash flow (or dividend growth approach Kirby Enterprises's stock is currently selling for $45.56 per share, and the firm expects its per share dividend to be $2.35 in one year. Analysts project the firm's growth rate to be constant at 5.729. Using the cost of equity using the discounted cash flow for dividend growth) approach, what is Kirby's cost of internal equity? O 11.47% 13.60 10.34% O 10.8% Estimating growth rates It is often difficult to estimate the expected future dividend growth rate for use in estimating the cost of using equity using the DCFor DG approach In general, there are three available methods to generate such an estimate: Carry forward a historical realed growth rate, and apply it to the future - Locate and apply an expected future growth rate prepared and published by security analysts Use the retention growth model Suopose Kirby is currently distributing 50% of its earnings in the form of cash dividends. It has also historically generated an average return on equity (ROE) of 20% Kirby's estimated growth rate is Grade it Now Save & Continue Continue without