The cost of equity using the CAPM approach

The yield on a three-month T-bill is 3.12%, and the yield on a 10-year T-bond is 4.23%. the market risk premium is 5.75%. The Wilson Company has a beta of 0.92. Using the Capital Asset Pricing Model (CAPM) approach, Wilsons cost of equity is .

The cost of equity using the bond yield plus risk premium approach

The Harrison Company is closely held and, therefore, cannot generate reliable inputs with which to use the CAPM method for estimating a companys cost of internal equity. Harrisons bonds yield 11.52%, and the firms analysts estimate that the firms risk premium on its stock over its bonds is 4.95%. Based on the bond-yield-plus-risk-premium approach, Harrisons cost of internal equity is:

19.76%

20.59%

18.12%

16.47%

The cost of equity using the discounted cash flow (or dividend growth) approach

Johnson Enterprisess stock is currently selling for $32.45 per share, and the firm expects its per-share dividend to be $1.38 in one year. Analysts project the firms growth rate to be constant at 5.72%. Using the cost of equity using the discounted cash flow (or dividend growth) approach, what is Johnsons cost of internal equity?

13.46%

9.97%

10.47%

12.46%