Question

5. The cost of retained earnings Aa Aa E the cost of raising capital through issuing The cost of raising capital through retained earnings is new common stock. The cost of equity using the CAPM approach The current risk-free rate of return (PRF) is 4.23%, while the market risk premium is 5.75%. the Allen Company has a beta of 0.92. Using the Capital Asset Pricing Model (CAPM) approach, Allen'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 4.95%. Based on the bond-yield-plus-risk-premium approach, Hoover's cost of internal equity is: 15.23% 0 14.47% 19.04% 0 16.75% The cost of equity using the discounted cashflow (or dividend growth) approach Pierce 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 Pierce's cost of internal equity? O 0 13.46% 10.47% 12.46% 9.97%

Answer 1

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- 2x Σ AutoSum : A Fill 2 Sort & m Find & Insert Delete Format 2 Clear Filter Editing Select Cells V FW EX FX ke - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins % Cut Calibri -11AA = = = Dr Wrap Text General Ea Copy Paste B I U - D SF A Merge Format Painter Merge & Center Center $ - % % 4:0 .00 8.9 Conditional Format Cell Formatting as Table Styles Clipboard Font Alignment Number Styles FS111 EN FO F P FQ FR FS FT FU F 101 102 ANS 1 CHEAPER THAN 103 104 ANS 2 ke = Rf + beta(Rm-Rf) Rm-Rf = RISK PREMIUM 105 ke = 4.23% +0.92(5.75%) Rf = RISK FREE RATE 106 ke = 9.52% 107 108 ANS 3 BOND YIELD PLUS RISK PREMIUM APPROACH 109 ke = BONDS YIELD + RISK PREMIUM ke = 10.28% +4.95% 111 ke = 15.23% 112 ANS 4 ke = D1/PO+g 114 ke = 1.38/32.45 + 0.0572 115 ke = 9.97% 116 117 ANS 5 b X ROE (DIVIDEND PAYOUT = 50%, b = 50%] 50% X 14% 119 7.00% HEN KE CAPM UTILITY, SHARPE, beta convexity DGM betaport future INDEX INTL CAP BUD SANDRINE LEASING PV, FV, ANNUITY Rea ferences: A1310 110 113 118 DIR right clean RI O WACC - YIELD bond portfolio BO 130% 9 * 2. ENG 25-11-2019