The cost of raising capital through retained earnings is the cost of raising capital through issuing new common stock. The cost of equity using the CAPM approach The current risk-free rate of return (TRFFRF) is 3.86% while the market risk premium is 6.17%. The Burris Company has a beta of 0.92. Using the capital asset pricing model (CAPM) approach, Burris'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 11.52%, and the firm's analysts estimate that the firm's risk premium on its stock over its bonds is 4.95%. Based on the bond-yield-plus-risk-premium approach, Taylor's cost of internal equity is: 16.47% 19.76% 18.12% 15.65%

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
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The cost of raising capital through retained earnings is the cost of raising capital through
issuing new common stock.
The cost of equity using the CAPM approach
The current risk-free rate of return (rRFrRF) is 3.86% while the market risk premium is 6.17%.
The Burris Company has a beta of 0.92. Using the capital asset pricing model (CAPM)
approach, Burris'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 11.52%, and the firm's analysts estimate that the firm's risk premium on its
stock over its bonds is 4.95%. Based on the bond-yield-plus-risk-premium approach,
Taylor's cost of internal equity is:
16.47%
19.76%
18.12%
15.65%
The cost of eguity usina the discOunted.cash flow for dividend.aroutb) approach
Transcribed Image Text:The cost of raising capital through retained earnings is the cost of raising capital through issuing new common stock. The cost of equity using the CAPM approach The current risk-free rate of return (rRFrRF) is 3.86% while the market risk premium is 6.17%. The Burris Company has a beta of 0.92. Using the capital asset pricing model (CAPM) approach, Burris'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 11.52%, and the firm's analysts estimate that the firm's risk premium on its stock over its bonds is 4.95%. Based on the bond-yield-plus-risk-premium approach, Taylor's cost of internal equity is: 16.47% 19.76% 18.12% 15.65% The cost of eguity usina the discOunted.cash flow for dividend.aroutb) approach
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