What is the cost of equity from retained earnings based on the DCF approach? Why is there a cost associated with retained earnings? Flotation costs on new common stock total 10%, and the firm's marginal tax rate is 40%. Posted by 1 month ago. Using a DCF is one of the best ways to calculate the intrinsic value of a company. Cost of New Common Stock เหมือน Cost of Retained earnings (Using DCF method) แต่ต้องมีการหัก Flotation Cost ในส่วนของราคา 1 + k 1 - n k 1 1 + k n M V = I + What is the estimated cost of common equity using the DCF approach? 3.2 Cost of Retained earnings (Using CAPM method) K i= K RF + ( K M- K RF) b I 4. Discounted Cash Flow (DCF) valuation is one of the fundamental models in value investing. I. e. What is the estimated cost of common equity using the DCF approach? a. 4 comments. Student response: Student Response Answer Choices a. h. b. Super Solutions Inc. is a constant growth firm, which just paid a dividend of $3.00, sells for $33.00 per share, and has a growth rate of 6 percent. (1) What are two approaches that can be used to adjust for flotation costs? What is Rollins’ cost of retained earnings using the bond-yield-plus-risk-premium approach? What is the firm’s cost of retained earnings using the DCF approach? Using a DCF is a method that analysts use throughout finance, and some think that using this type of valuation is far too complicated for them. NPV analyses using the discounted cash flow approach are widely used across various industries to decide which projects to invest in. 13.6% 14.1% 16.0% 16.6% 16.9%. The firm's policy is to use a risk premium of 4% when using the bond-yield-plus-risk-premium method to find rs. 13.6% 14.1% 16.0%. 9.08% b. 2. What is Coleman’s estimated cost of common equity using the CAPM approach? Close. BEC question on cost of retained earnings/discounted cash flow method. BEC question on cost of retained earnings/discounted cash flow method. The discounted cash flow approach is a valuation method investors and organizations can use to assess the net present value (NPV) of an asset, process, product, or the overall organization. share. It is considered an “absolute value” model, meaning it uses objective financial data to evaluate a company, instead of comparisons to other firms. 13.6% b. Now calculate the cost of common equity from retained earnings using the CAPM method. g. What is your final estimate for r s? What is the firm's cost of retained earnings using the DCF approach? H. Explain in words why new common stock has a higher cost than retained earnings. What is Rollins’ WACC, if the firm has insufficient retained earnings to fund the equity portion of its capital budget? f. What is the bond-yield-plus-risk-premium estimate for Coleman's cost of common equity? c. 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