The cost of raising capital through retained earnings is new common stock. the c

Question

The cost of raising capital through retained earnings is new common stock. the cost of raising capital through issuing The cost of equity using the CAPM approach The current risk-free rate of return (rRF) is 3.86%, while the market risk premium is 6.17%, the Wilson Company has a beta of 1.56. 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 5.89. Based on the bond-yield-plus-risk-premiunm approach, Taylor's cost of internal equity is: 0 19.40% O 20.21% O 16.1796 O 17.79% The cost of equity using the discounted cashflow (or dividend growth) approach Johnson Enterprises's stock is currently selling for $45.56 per share, and the firm expects its per-share dividend to be $2.35 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 Johnson's cost of internal equity? O 14.69% o 10.34% O 11.42% O 10.8896

Explanation / Answer

1)

Wilson company Cost of equity (r) Rf+×Rp Here, Risk free rate of return (Rf) 3.86% Beta of the stock ()                             1.56 Market risk premium (Rp) 6.17% Wilson company Cost of equity (r) 13.49% 3.86%+1.56*6.17%

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