The cost of raising capital through retained earnings is (GREATER THAN / LESS THAN) the cost of raising capital through issuing new common stock. The current risk-free rate of return is 3.80% and the current market risk premium is 5.70%. Blue Hamster Manufacturing Inc. has a beta of 0.87. Using the Capital Asset Pricing Model (CAPM) approach, Blue Hamster’s cost of equity is (9.64 / 8.76 / 11.39 / 9.20) . Fuzzy Button Clothing Company is closely held and, as a result, cannot generate reliable inputs for the CAPM approach. Fuzzy Button’s bonds yield 10.20%, and the firm’s analysts estimate that the firm’s risk premium on its stock relative to its bonds is 4.50%. Using the bond-yield-plus-risk-premium approach, the firm’s cost of equity is (14.70 / 16.17 / 17.64 / 18.38) . The stock of Cute Camel Woodcraft Company is currently selling for $32.45, and the firm expects its dividend to be $1.38 in one year. Analysts project the firm’s growth rate to be constant at 5.70%. Using the discounted cash flow (DCF) approach, Cute Camel’s cost of equity is estimated to be (10.45 / 12.44 / 9.95 / 13.43)
The cost of raising capital through retained earnings is (GREATER THAN / LESS THAN) the cost of raising capital through issuing new common stock. The current risk-free rate of return is 3.80% and the current market risk premium is 5.70%. Blue Hamster Manufacturing Inc. has a beta of 0.87. Using the Capital Asset Pricing Model (CAPM) approach, Blue Hamster’s cost of equity is (9.64 / 8.76 / 11.39 / 9.20) . Fuzzy Button Clothing Company is closely held and, as a result, cannot generate reliable inputs for the CAPM approach. Fuzzy Button’s bonds yield 10.20%, and the firm’s analysts estimate that the firm’s risk premium on its stock relative to its bonds is 4.50%. Using the bond-yield-plus-risk-premium approach, the firm’s cost of equity is (14.70 / 16.17 / 17.64 / 18.38) . The stock of Cute Camel Woodcraft Company is currently selling for $32.45, and the firm expects its dividend to be $1.38 in one year. Analysts project the firm’s growth rate to be constant at 5.70%. Using the discounted cash flow (DCF) approach, Cute Camel’s cost of equity is estimated to be (10.45 / 12.44 / 9.95 / 13.43)
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
Section: Chapter Questions
Problem 1PS
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The cost of raising capital through retained earnings is (GREATER THAN / LESS THAN) the cost of raising capital through issuing new common stock.
The current risk-free rate of return is 3.80% and the current market risk premium is 5.70%. Blue Hamster Manufacturing Inc. has a beta of 0.87. Using the Capital Asset Pricing Model (CAPM) approach, Blue Hamster’s cost of equity is (9.64 / 8.76 / 11.39 / 9.20) .
Fuzzy Button Clothing Company is closely held and, as a result, cannot generate reliable inputs for the CAPM approach. Fuzzy Button’s bonds yield 10.20%, and the firm’s analysts estimate that the firm’s risk premium on its stock relative to its bonds is 4.50%. Using the bond-yield-plus-risk-premium approach, the firm’s cost of equity is (14.70 / 16.17 / 17.64 / 18.38) .
The stock of Cute Camel Woodcraft Company is currently selling for $32.45, and the firm expects its dividend to be $1.38 in one year. Analysts project the firm’s growth rate to be constant at 5.70%. Using the discounted cash flow (DCF) approach, Cute Camel’s cost of equity is estimated to be (10.45 / 12.44 / 9.95 / 13.43) .
Transcribed Image Text:The cost of raising capital through retained earnings is
the cost of raising capital through issuing new common stock.
The current risk-free rate of return is 3.80% and the current market risk premium is 5.70%. Blue Hamster Manufacturing Inc. has a beta of 0.87.
Using the Capital Asset Pricing Model (CAPM) approach, Blue Hamster's cost of equity is
Fuzzy Button Clothing Company is closely held and, as a result, cannot generate reliable inputs for the CAPM approach. Fuzzy Button's bonds yield
10.20%, and the firm's analysts estimate that the firm's risk premium on its stock relative to its bonds is 4.50%. Using the bond-yield-plus-risk-
premium approach, the firm's cost of equity is
The stock of Cute Camel Woodcraft Company is currently selling for $32.45, and the firm expects its dividend to be $1.38 in one year. Analysts project
the firm's growth rate to be constant at 5.70%. Using the discounted cash flow (DCF) approach, Cute Camel's cost of equity is estimated to be
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