If a firm cannot invest retained earnings to earn a rate of return______________ (Pick either A- greater than or equal to or B- Less than)   the required rate of return on retained earnings, it should return those funds to its stockholders.   The current risk-free rate of return is 4.60% and the current market risk premium is 6.10%. Green Caterpillar Garden Supplies Inc. has a beta of 1.56. Using the Capital Asset Pricing Model (CAPM) approach, Green Caterpillar’s cost of equity is_____________%        Cute Camel Woodcraft Company is closely held and, as a result, cannot generate reliable inputs for the CAPM approach. Cute Camel’s bonds yield 10.20%, and the firm’s analysts estimate that the firm’s risk premium on its stock relative to its bonds is 3.50%. Using the bond-yield-plus-risk-premium approach, the firm’s cost of equity is___________%       The stock of Cold Goose Metal Works Inc. is currently selling for $25.67, and the firm expects its dividend to be $2.35 in one year. Analysts project the firm’s growth rate to be constant at 7.20%. Using the discounted cash flow (DCF) approach, Cold Goose’s cost of equity is estimated to be____________%

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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If a firm cannot invest retained earnings to earn a rate of return______________ (Pick either A- greater than or equal to or B- Less than)   the required rate of return on retained earnings, it should return those funds to its stockholders.
 
The current risk-free rate of return is 4.60% and the current market risk premium is 6.10%. Green Caterpillar Garden Supplies Inc. has a beta of 1.56. Using the Capital Asset Pricing Model (CAPM) approach, Green Caterpillar’s cost of equity is_____________%     
 
Cute Camel Woodcraft Company is closely held and, as a result, cannot generate reliable inputs for the CAPM approach. Cute Camel’s bonds yield 10.20%, and the firm’s analysts estimate that the firm’s risk premium on its stock relative to its bonds is 3.50%. Using the bond-yield-plus-risk-premium approach, the firm’s cost of equity is___________%    
 
The stock of Cold Goose Metal Works Inc. is currently selling for $25.67, and the firm expects its dividend to be $2.35 in one year. Analysts project the firm’s growth rate to be constant at 7.20%. Using the discounted cash flow (DCF) approach, Cold Goose’s cost of equity is estimated to be____________%
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