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Hello students, here is a question.
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The cost of retained earning and the capital through retained earning is dash greater than or less than of cost raising of capital through issuing a new common stock.
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So, in this question we have four sub questions.
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The first one will be, the answer is the cost of raising capital through retained earning will be less than the cost of raising capital.
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It is less than the cost of raising capital through new common stock since issuing a new common stock will have a floating cost.
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And for the second sub question, the current risk -free rate of return is 3 .80 and the current market risk premium is 6 .10%.
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Blue hamster manufacturing inc has a beta of 1 .56 using a capital asset pricing modeling approach.
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The blue hamster cost will be equity is dash.
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So, the answer is the cost of equity will be risk -free rate plus beta into market risk premium.
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So, the values are 3 .80 % plus 1 .56 into 6 .10%.
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So, we get answer as 13 .32%.
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And for the third sub question, the first button clothing company is closely held as a result of cannot be generated reliable input of capm approach.
01:38
The first button bond yield is 11 .50 % and the firm analysis of estimate that the firm risk premium is on the stock relative to its bond is 3 .50 % using the bond yield plus risk premium approach...