Purchase Solution

Cost of Retained Earnings Using Beta

Not what you're looking for?

Ask Custom Question

Pony Corp. is undertaking a capital budgeting analysis. The firm's beta is 1.5. The rate on 30-year U.S. Treasury bonds is 5%, and the return on the S & P 500 index is 12 %. What is the cost of Pony's retained earnings?

a. 13.3%
b. 15.5%
c. 17.7%
d. 19.9%

Purchase this Solution
Solution Summary

This solution identifies the correct answer for the cost of Pony's retained earnings with calculations.

Purchase this Solution
Free BrainMass Quizzes
Six Sigma for Process Improvement

A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.

Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

Introduction to Finance

This quiz test introductory finance topics.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

View More Free Quizzes
Related BrainMass Solutions

  • Cost of retained earnings

    Using CAPM, Cost of retained earnings = Rf + (Rm-Rf) beta where Rf = risk free rate = 3% (Rm-Rf) = market risk premium = 12% beta = 1.8 Cost of retained earnings = 3% + 12% X 1.8 = 24.6% The solution explains how to calculate the cost of retained

  • Cost of Equity from Retaining Earnings for Magee Inc.

    Using CAPM Cost of retained earnings = rRF + RPM X beta we are given, rRF = 4%, RPM = 5% and beta = 1.15 Cost of equity = 4% + 5%X1.15 = 9.75% The solution explains how to calculate the cost of equity from retaining earnings using the CAPM approach

  • Weighted average cost of capital if retained earnings

    The company's after tax cost of debt is 8%, its cost of preferred debt is 10%, its cost of retained earnings is 14%, and its cost of new common stock is 16%. The company stock has a beta of 1.2 and the company's marginal tax rate is 35%.

  • Cost of Retained Earnings

    The cost of retained earnings is ( using CAPM) Cost of ret earnings = Risk free rate +( market return-risk free rate ) X beta Cost of retained earnings = 4 + (10-4) X 1.5 = 13%.

  • Optimal capital budget

    Using CAPM Cost of retained earnings = Rf + (Rm-Rf) beta Where Rf = risk free rate = 7.5% Rm = Market return = 12.5% Beta = 1.2 Cost of retained earnings = 7.5% + (12.5%-7.5%) 1.2 = 13.5% We take the average as the cost of retained earnings = (14.48%

  • WACC/Debt for Rollins Corporation

    What is the firm's cost of retained earnings using the DCF approach? 5.Refer to Rollins Corporation. What is Rollins' cost of retained earnings using the bond-yield-plus-risk-premium approach? 6.Refer to Rollins Corporation.

  • Cost of capital

    Use the DCF method to find the cost of common equity. b. Now calculate the cost of common equity from retained earnings using the CAPM method. c. What is the cost of new common stock, based on CAPM?

  • Weighted Average Cost of Capital and Optimal Capital Budget

    If new common stock is issued, it will have a flotation cost of 10%. Find the cost of retained earnings and the cost of issuing new common shares.

  • Investment return (in percentage terms) for the year

    It expects to have available $100,000 of retained earnings in the coming year; once these retained earnings are exhausted, the firm will use new common stock as the form of common stock equity financing. a.

View More Related Solutions