Answered step by step
Verified Expert Solution
Question
1 Approved Answer
The cost of raising capital through retained earnings is ____ the cost of raising capital through issuing new common stock. The current risk-free rate of
The cost of raising capital through retained earnings is ____ the cost of raising capital through issuing new common stock. The current risk-free rate of return (r_RF) is 3.86%, while the market risk premium is 6.17%. the Allen Company has a beta of 0.92. Using the Capital Asset Pricing Model (CAPM) approach, Allen's cost of equity is. 10.49% 9.54% 8.59% 11.45% The Adams Company is closely held and, therefore, cannot generate reliable inputs with which to use the CAPM method for estimating a company's cost of internal equity. Adams's bonds yield 11.52%, and the firm's analysts estimate that the firm's risk premium on its stock over its bonds is 4.95%. Based on the bond-yield-plus-risk-premium approach, Adams's cost of internal equity is 19.76% 18.12% 16.47% 20.59%
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started