4 The cost of equity using the discounted cash flow (or dividend growth) approachGrant Enterprises's stock is currently selling for $32.45 per share, and the firm expects its per-share dividend to be $1.38 in one year. Analysts projectthe 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 isGrant's cost of internal equity?O 15.55%O 11.52%O 12.10%O 10.94%Estimating growth ratesIt 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 Grant is currently distributing 50% of its earnings in the form of cash dividends. It has also historically generated an average return on equity(ROE) of 20%. Grant's estimated growth rate is%. 4. The cost of retained earningsTrue or False: It is free for a company to raise money through retained earnings, because retained earnings represent money that is left over afterdividends are paid out to shareholders.O FalseO TrueThe cost of equity using the CAPM approachThe current risk-free rate of return (TRF) is 4.23% while the market risk premium is 6.63%. The Monroe Company has a beta of 0.78. Using thecapital asset pricing model (CAPM) approach, Monroe's cost of equity isThe cost of equity using the bond yield plus risk premium approachThe Hoover Company is closely held and, therefore, cannot generate reliable inputs with which to use the CAPM method for estimating a company'scost of internal equity. Hoover's bonds yield 10.28%, and the firm's analysts estimate that the firm's risk premium on its stock over its bonds is3.55%. Based on the bond-yield-plus-risk-premium approach, Hoover's cost of internal equity is:O 17.29%O 13.14%O 13.83%O 15.21%

As student mentioned '4'. ANSWERING MULTIPLE QUESTIONS ON 4. THE COST OF EARNINGS Meaning: The…

True or False: It is free for a company to raise money through retained earnings, because retained earnings represent money that is left over after dividends are paid out to shareholders. O False O True The cost of equity using the CAPM approach The current risk-free rate of return (TRF) is 4.23% while the market risk premium is 6.63%. The Monroe Company has a beta of 0.78. Using the capital asset pricing model (CAPM) approach, Monroe's cost of equity is The cost of equity using the bond yield plus risk premium approach The Hoover 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. Hoover'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, Hoover's cost of internal equity is: O 17.29% O 13.14% O 13.83% O 15.21%