h. If Skye continues to use the same market-value capital structure from above, what is the firm's WACC assuming that it uses only retained earnings for equity.

h. If Skye continues to use the same market value capital structure from above, what is the firm's WACC assuming that it uses only retained earnings for equity. WACC using retained earnings Wd Wp Wc 0.0% WACC $3.83 will grow at an annual rate of 10%. 6 7 D 8 D1 9 PO 0 g 1 2 ((3.83*1.1)/81)+0.1 15.20% $81.00 10% rs 15.20% 3 4 5 e. Now calculate the cost of common equity from retained earnings, using the CAPM method, 6 where the market risk premium is 8%, the risk-free rate is 5.2%, and Skye's beta is 1.25. 8 Skye's beta = 1.25 9 Market risk premium, rm - PRF = 8.0% o Risk-free rate, RF- 5.2% 1 2 3 5.2+(1.25*8) 4 15.20% 5 6 f. Now calculate the cost of common equity from retained earnings, using the Bond Yield Premium method, 7 where Skye uses a risk premium add-on of 4%. 8 9 4+5.2 is 0 9.2% 1 2 g. What rate should be used for the cost of common equity from retained earnings? Explain 3 4 Average of all estimates should be used as it minimises the error 5 6 Cost of common equity estimate = 13.2% h. If Skye continues to use the same market value capital structure from above, what is the firm's WACC assuming that it uses only retained earnings for equity. WACC using retained earnings Wd Wp Wc 0.0% WACC $3.83 will grow at an annual rate of 10%. 6 7 D 8 D1 9 PO 0 g 1 2 ((3.83*1.1)/81)+0.1 15.20% $81.00 10% rs 15.20% 3 4 5 e. Now calculate the cost of common equity from retained earnings, using the CAPM method, 6 where the market risk premium is 8%, the risk-free rate is 5.2%, and Skye's beta is 1.25. 8 Skye's beta = 1.25 9 Market risk premium, rm - PRF = 8.0% o Risk-free rate, RF- 5.2% 1 2 3 5.2+(1.25*8) 4 15.20% 5 6 f. Now calculate the cost of common equity from retained earnings, using the Bond Yield Premium method, 7 where Skye uses a risk premium add-on of 4%. 8 9 4+5.2 is 0 9.2% 1 2 g. What rate should be used for the cost of common equity from retained earnings? Explain 3 4 Average of all estimates should be used as it minimises the error 5 6 Cost of common equity estimate = 13.2%