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Bookmarks PeopleWindow Help xAplila: Student Question x C Home ×?M Welcome to Chegg-derne kat ps://courses.aplia.com/af/servlet/quiz?quiz action takeQuiz& quiz probGuid-QNAPCOA8010100000041ca26a00700008 The cost of retained earnings True or False: It is free for a company represent money that is left over after dividends are paid out to shareholders. Aa Aa to raise money through retained earnings, because retained earnings O False O True The cost of equity using the CAPM approach The current risk-free rate of return (r) is 4.67%, whie the market risk premium is S.75%, the DAmico Company has a beta of 1.56. Using the Capital Asset Pricing Model (CAPM) approach, D'Amico's cost of equity is The cost of equity using the bond yield plus risk premium approach The Harrison Company is closely held and, therefore, cannot generate reliable inputs method for estimating a company's cost of internal equity. Harrison's bonds yield 10.28%, 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: 16.17% ? 19.40% ? 15.36% ? 17.79% The cost of equity using the discounted cashflow (or dividend growth) approach Kirby 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 project the firm's growth rate to be constant at 5.72%. Using the cost of equity using the discounted cashflow (or dividend growth) approach, what is Kirby's cost of internal equity? ? 9.97% ? 9.47% 10.47% 25

Explanation / Answer

1. false
2. =risk free rate+beta*market risk premium=4.67%+1.56*5.75%=13.64%
3. =bonds yield+risk premium=10.28%+5.89%=16.17%
4. =Expected Dividend/Price+growth rate=1.38/32.45+5.72%=9.97%
5. =(1-dividend payout rate)*RoE=(1-70%)*10%=3%

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