The cost of raising capital through retained eamings is the cost of raising capital through issuing new common stock. The cost of equity using the CAPM approach The current risk-free rate of return (rep) is 3.86% while the market risk premium is 6.63%. The Allen Company has a beta of 0.78 . Using the capital asset pricing model (CAPM) approach, Allen's cost of equity is The cost of equity using the bond yield plus risk premium approath The Kennedy Company is dosely held and, therefore, cannot generate reliable inputs with which to use the CAPM method for estimating a company's cost of internal equity. Kennedy's bonds yield 10.28%, and the fim's analysts estimate that the firm's risk premium on its stock over its bonds is 3.55\%. Based on the bend-yleld-plus-risk-premium apgrosch, Kennedy's cost of internal equity is: The cost of equity using the discounted cash flow (or dividend growth) approach the Nimis orowth rate to be constant at 7.27es. Using the cost of equity using the discovoted cash How (or oividend growth) approach, what is Kirty) cost of internal equity? talimating growh rates Estimating growth rates It is often difficulk to estimate the expected future dividend growth rate for use in estimating the cost of existing equity using the DCF or DG approach. In generai, there are three avallable methods to generate such an estimate: - Carry lorword a bistorical realized growth rate, and apply it to the future. - Locate and apply an expected future growth rate prepared and pubilished by security analysts. - Use the retention growth model. Suppore Kirby is currentiy distributing 70 of its eamings in the form of cath dividends. it has also histonkally generated an averege retarm on equith (a0k) of 20\%. Kirbys estinsted grosth rate is