XYZ Inc
Subject:FinancePrice:2.86 Bought14
XYZ Inc. hired you to help them estimate the cost of equity. The yield on the firm's bonds is 5%, and you believe that the cost of equity can be estimated using a risk premium of 3.45% over a firm's own cost of debt. What is an estimate of the firm's cost of equity? a. 9.45% b. 12.45% O c. 8.45% O d. 9.99% O e. 15.16%
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The cost of equity is computed as shown below:
= yield on bonds + risk premium
= 5% + 3.45%
= 8.45%
