If a firm cannot invest retained eamings to earn a rate of return the required rate of return on retained earnings, it should return those funds to its stockholders. The cost of equity using the CAPM approach The current risk-free rate of return ( rnwF ) is 4.67% while the market risk premium is 5.75%. The Burris Company has a beta of 1.56 . Using the capital asset pricing model (CAPM) approach, Burris's cost of equity is The cost of equity using the bond vield 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 intemal equity. Adams's bonds vield 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 vield plus-risk-premium approach, Adams's cost of internal equity is: 19.15% 16.54% 21.76% 17.41% The cost of equity using the discounted cash flow (or dividend growth) approach Johnson Enterprises's stock is currently selling for $45.56 per share, and the firm expects its per-share dividend to be $1.38 in one year. Analysts project the firm's orowth rate to be constant at 5.72%. Estimating the cost of equity using the discounted cash flow (or dividend orowth) approach, what is Johnson's cost of internal equity? 11.81% 8.75% 8.31% 9.19% Estimating growth rates. It is often dirficil to estimate the expected future dividend growth rate for use in estimating the cost of existing equity using the DCF or DG approach. In general, there are three avallable methods to generate such an estimate: - Carry forward a historical realized crowth rate, and apply it to the future. - Locate and apply an expected future growth rate prepared and published by security analysts. - Use the retention urowth model. Suppose Johinson is currently distributing 65% of its earnings in the form of cash dividends. It has also historically generated an average return on equity (ROE) of 22%. Johnson's estimated growth rate is W