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The Adams 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. Adams’s bonds yield 10.28%, 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, Adams’s cost of internal equity is:

Sagot :

Answer:

the cost of internal equity is 16.17%

Explanation:

The computation of the cost of internal equity is shown below:

= Yield of the bond + risk premium of the firm

= 10.28% + 4.95%

= 16.17%

Hence, the cost of internal equity is 16.17%

Basically we add the two things so that the cost of internal equity could be determined

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