The cost of equity using the bond yield plus risk premium approach The Harrison 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. Harrison's bonds yield 11.52%, and the firm's analysts estimate that the firm's risk premium on its stock over its bonds is 5.89. Based on the bond-yield-plus-risk-premium approach, Harrison's cost of internal equity is: 19.15% O 17.41% O20.89% O 21.76%

The cost of equity using the bond yield plus risk premium approach The Harrison 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. Harrison's bonds yield 11.52%, and the firm's analysts estimate that the firm's risk premium on its stock over its bonds is 5.89. Based on the bond-yield-plus-risk-premium approach, Harrison's cost of internal equity is: 19.15% O 17.41% O20.89% O 21.76%

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Description: **The Cost of Equity Using the Bond Yield Plus Risk Premium Approach**The Harrison Company is closely held and, therefore, cannot generate reliable inputs necessary to use the CAPM method for estimating a company's cost of internal equity. Harrison’

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter5: Risk Analysis

Section: Chapter Questions

Problem 2QE

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