Question

Burlington Company hired your consulting firm to help them estimate the cost of equity. The yield on the firm's bonds is 7.60%, and your firm's economists believe that the cost of equity can be estimated using a risk premium of 3.65% over a firm's own cost of debt. What is an estimate of the firm's cost of equity from retained earnings? 10.46% 10.85% 11.25% 11.43% 11.59%

Answer 1

Step-by-step explanation:

Retained earnings are revenues which a company has received to date, after deducting any dividends or any other distributions rewarded or paid to investors. This sum is adjusted at any time there is an entry to the accounting records that impacts an expense or revenue account.

the formular for calculating the cost of equity from retained earnigs is:

Cost of retained earnings= long-term bond yield + risk premium

=7.6% +3.65%

= 11.25%

Answer 2

Correct answer is C 11.25%

Step-by-step explanation:

Cost of retained earnings= long-term bond yield + risk premium

=7.6% +3.65%

= 11.25%