Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The cost of retained earnings If a firm cannot invest retained earnings to earn a rate of return the required rate of return on retained

The cost of retained earnings
If a firm cannot invest retained earnings to earn a rate of return
the required rate of return on retained earnings, it
should return those funds to its stockholders.
The cost of equity using the CAPM approach
The current risk-free rate of return (rRF) 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 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 internal 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 bond-yield-plus-risk-premium approach, Lincoln's cost of internal equity is:
18.08%
18.84%
15.07%
16.58%
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Trading And Investing

Authors: John Teall

1st Edition

0123918804, 978-0123918802

More Books

Students also viewed these Finance questions

Question

1. Does your voice project confidence? Authority?

Answered: 1 week ago