The cost of retained earnings

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 is 3.80% and the current market risk premium is 6.60%. Blue Hamster Manufacturing Inc. has a beta of 0.87. Using the Capital Asset Pricing Model (CAPM) approach, Blue Hamsters cost of equity is .

Fuzzy Button Clothing Company is closely held and, as a result, cannot generate reliable inputs for the CAPM approach. Fuzzy Buttons bonds yield 11.50%, and the firms analysts estimate that the firms risk premium on its stock relative to its bonds is 3.00%. Using the bond-yield-plus-risk-premium approach, the firms cost of equity is .

The stock of Cute Camel Woodcraft Company is currently selling for $25.67, and the firm expects its dividend to be $2.35 in one year. Analysts project the firms growth rate to be constant at 7.20%. Using the discounted cash flow (DCF) approach, Cute Camels cost of equity is estimated to be .