Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please see the different choices as options in each picture. The cost of retained earnings If a firm cannot invest retained earnings to earn a

image text in transcribedimage text in transcribedPlease see the different choices as options in each picture.image text in transcribed

The cost of retained earnings If a firm cannot invest retained earnings to earn a rate of return return on retained earnings, it should return those funds to its s the required rate of less than greater than or equal to The cost of equity using the CAPM approaclh The yield on a three-month T-bill is 4%, the yield on a 10-year T-bond is 4.94%, the market risk premium is 9.38%. and the Monroe Company has a beta of 1.03. 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 In contrast, the Harrison Company is closely held and, therefore, cannot generate reliable inputs with which to apply the CAPM method to estimate its cost of internal equity (retained earnings). However, its management knows that its outstanding bonds are currently yielding 11.34%, and the firm's analysts estimate that the risk premium of its stocks over its bonds is currently 1.90%. As result, Harrison's cost of internal equity (rs)-based on the own-bond-yield-plus-judgemental-risk-premium approach-is 13.24% 15.89% 16.55% 12.58% The cost of equity using the discounted cash flow (or dividend-yield-plus-growth-rate) approach O Type here to search Address

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions