The cost of raising capital through retained earnings is The cost of equity using the CAPM approach the cost of raising capital through Issuing new common stock. The current risk-free rate of return (IRF) IS 4.67% while the market risk premium is 5.75%. The Wilson Company has a beta of 0.78. Using the capital asset pricing model (CAPM) approach, Wilson's cost of equity is The cost of equity using the bond yield plus risk premium approach The Taylor 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. Taylor's bonds yield 10.28%, 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, Taylor's cost of internal equity is: ○ 15.21% O 13.83% 13.14% 17.29% The cost of equity using the discounted cash flow (or dividend growth) approach Tyler Enterprises's stock is currently selling for $25.67 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 7.27%. Estimating the cost of equity using the discounted cash flow (or dividend growth) approach, what is Tyler's cost of Internal equity? O 13.28% ○ 17.08% 12.02% O 12.65% Estimating growth rates It is often difficult to estimate the expected future dividend growth rate for use in estimating the cost of existing equity using the DCF or DG approach. In general, there are three available 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 rate prepared and published by security analysts. • Use the retention growth model. Suppose Tyler is currently distributing 60% of its earnings in the form of cash dividends. It has also historically generated an average return on equity (ROE) of 8%. Tyler's estimated growth rate is %.
The cost of raising capital through retained earnings is The cost of equity using the CAPM approach the cost of raising capital through Issuing new common stock. The current risk-free rate of return (IRF) IS 4.67% while the market risk premium is 5.75%. The Wilson Company has a beta of 0.78. Using the capital asset pricing model (CAPM) approach, Wilson's cost of equity is The cost of equity using the bond yield plus risk premium approach The Taylor 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. Taylor's bonds yield 10.28%, 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, Taylor's cost of internal equity is: ○ 15.21% O 13.83% 13.14% 17.29% The cost of equity using the discounted cash flow (or dividend growth) approach Tyler Enterprises's stock is currently selling for $25.67 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 7.27%. Estimating the cost of equity using the discounted cash flow (or dividend growth) approach, what is Tyler's cost of Internal equity? O 13.28% ○ 17.08% 12.02% O 12.65% Estimating growth rates It is often difficult to estimate the expected future dividend growth rate for use in estimating the cost of existing equity using the DCF or DG approach. In general, there are three available 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 rate prepared and published by security analysts. • Use the retention growth model. Suppose Tyler is currently distributing 60% of its earnings in the form of cash dividends. It has also historically generated an average return on equity (ROE) of 8%. Tyler's estimated growth rate is %.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:The cost of raising capital through retained earnings is
The cost of equity using the CAPM approach
the cost of raising capital through Issuing new common stock.
The current risk-free rate of return (IRF) IS 4.67% while the market risk premium is 5.75%. The Wilson Company has a beta of 0.78. Using the capital
asset pricing model (CAPM) approach, Wilson's cost of equity is
The cost of equity using the bond yield plus risk premium approach
The Taylor 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. Taylor's bonds yield 10.28%, 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, Taylor's cost of internal equity is:
○ 15.21%
O 13.83%
13.14%
17.29%
The cost of equity using the discounted cash flow (or dividend growth) approach
Tyler Enterprises's stock is currently selling for $25.67 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 7.27%. Estimating the cost of equity using the discounted cash flow (or dividend growth) approach, what is
Tyler's cost of Internal equity?
O 13.28%
○ 17.08%
12.02%
O 12.65%
Estimating growth rates
It is often difficult to estimate the expected future dividend growth rate for use in estimating the cost of existing equity using the DCF or DG approach.
In general, there are three available 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 rate prepared and published by security analysts.
• Use the retention growth model.
Suppose Tyler is currently distributing 60% of its earnings in the form of cash dividends. It has also historically generated an average return on equity
(ROE) of 8%. Tyler's estimated growth rate is %.
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