.If a firm cannot invest retained earnings to earn a rate of return _______ the required rate of return on retained earnings, it should return those funds to its stockholders.

a. less than

b. greater than or equa to

The current risk-free rate of return is 4.2%. The market risk premium is 6.6%. Allen Co. has a beta of 1.56. using the Capital Asset Pricing Model (CAPM) approach, Allens cost of equity is ________________?

a. 14.5%

b. 16.0%

c. 15.2%

d. 17.4%

Cano Co. is closely held and, consequently, cannot generate relaible inputs for the CAPM appoach. Cano's bonds yield 10.2%, and the firms analysts estimate that the firms risk premium on its stock over its bonds is 4.5%. Using the bond-yield-plus-risk-premium approach, find the firms cost of equity.

a. 14.7%

b. 14.0%

c. 17.6%

d. 18.4%