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The Kennedy 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. Kennedy’s bonds yield 11.52%, 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, Kennedy’s cost of internal equity is:

Respuesta :

TomShelby

Answer:

17.41%

Explanation:

"bond-yield-plus-risk-premium approach"

As the name states the cost of equity according to this method is the sum of the current market yield of the company bonds (cost of debt) plus a market premium for the risk as stocks do not have a guarantee return as bonds do.

11.52% + 4.95% = 17.41%

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