Asked by Shauna Shirk on May 27, 2024
Verified
P.Lange Inc.hired your consulting firm to help the company estimate the cost of equity.The yield on Lange's bonds is 7.25%,and your firm's economists believe that the cost of equity can be estimated using a risk premium of 3.50% over a firm's own cost of debt.What is an estimate of Lange's cost of equity from retained earnings?
A) 10.75%
B) 11.18%
C) 11.63%
D) 12.09%
Cost of Equity
The return that shareholders require or expect to realize on their investment, representing the opportunity cost of investing in the company.
Yield
The earnings generated and realized on an investment over a particular period, expressed as a percentage of the investment's cost or current market value.
Risk Premium
The extra return or reward that an investor expects to receive for taking a higher risk compared to a risk-free asset.
- Calculate the cost of equity using diverse approaches and comprehend the necessary inputs for each method.
- Assess the precision and dependability of various models in determining equity cost estimates.
Verified Answer
Learning Objectives
- Calculate the cost of equity using diverse approaches and comprehend the necessary inputs for each method.
- Assess the precision and dependability of various models in determining equity cost estimates.
Related questions
Which One of the Following Statements Concerning the Dividend Growth ...
Suppose Your Firm Is Going to Finance a New Project ...
Information Pertaining to Long-Term Stock Investments in 2017 by Bell ...
Rosco Company Purchased 35000 Shares of Common Stock of Paxton ...
Presented Below Are Two Independent Situations ...