Scanlon Inc.'s CFO hired you as a consultant to help her estimate the cost of capital. You have been provided with the following data: r_RF = 4.10%; RP_M = 5.25%; and b = 0.70. Based on the CAPM approach, what is the cost of equity from retained earnings?

	a.	9.25%
	b.	7.78%
	c.	7.08%
	d.	7.00%
	e.	8.47%

1 points

Question 6

A. Butcher Timber Company hired your consulting firm to help them estimate the cost of equity. The yield on the firm's bonds is 6.75%, and your firm's economists believe that the cost of equity can be estimated using a risk premium of 3.85% over a firm's own cost of debt. What is an estimate of the firm's cost of equity from retained earnings?

	a.	12.19%
	b.	12.51%
	c.	7.95%
	d.	10.60%
	e.	9.54%