The cost of raising capital through retained earnings 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 retum (rmp) is 3.86% while the market risk premium is 6.63%. The D'Amico Company has a beta of 0.78 . Using the capital asset pricing model (CAPM) approach, D'Amico's cost of equity is The cost of equity using the bond yleld plus risk premium approach The Lincoln Company is closely held and, therefore, cannot generate reliable inputs with which to use the CApM method for estimating a company's cost of intemal equity. Lincoln's bonds yield 11.52%, and the firm's analysts estimate that the firm's risk premium on its stock over its bonds is 3.55%. Based on the bjnd-yield-plus-risk-premium approach, Lincoln's cost of internal equity is: 14.32%15.07%18.08%618.84% The cost of equity using the discounted cash flow (or dividend growth) approach Kirby Enterprises's stock is currently selling for $45.56 per share, and the firm expects its per-share dividend to be $1.38 in one year. Analysts project the firm's growth rate to be constant at 5.72%. Estimating the cost of equity using the discounted cash now (or dividend growth) approach, what is Kirby's cost of internal equity? The cost of equity using the discounted cash flow (or dlvidend growth) approach Kirby Enterprises's stock is currently selling for $45.56 per share, and the firm expects its per-share dividend to be $1.38 in one year. Analysts project the firm's growth rate to be constant at 5.72%. Estimating the cost of equity using the discounted cash flow (or dividend growth) approsch, what is Kirby's cost of internal equity? 8.31% 10.94% 11.81% 8.75% Estimating growth rates It is often dificult to estimate the expected future dividend growth rate for use in estimating the cost of existing equity using the DCF or DG approsch. In general, there are three avaliable methods to generate such an estimate: - Carry forward a historical realized growth rate, and apply it to the future. - Locate and apply an expected future growth rote prepared and pubished by security analysts. - Use the retention growth model. Suppose Kirby is currenty distributing 45% of its earnings in the form of cash dividends. It hos also historically generated an average retum an equity (ROE) of 16\%, Kirby's entimated growth rate is