consultant firm has been hired by Eco Brothers Incto help them estimate the cost of common equity The yield on the firm's bonds is 8.75%, and your firm's economists believe that the cost of common can be estimated using a risk premium of 3.85% over a firm's own cost of debt What is an estimate of the firm's cost of common from retained earnings?

Question

Quizplus · Accepted Answer

The cost of common equity from retained earnings is the yield on the firm's bonds plus the risk premium. In this case, the yield on the firm's bonds is 8.75% and the risk premium is 3.85%, so the cost of common equity from retained earnings is 8.75% + 3.85% = 12.60%.

Consultant Firm Has Been Hired by Eco Brothers Incto Help