Problem:
P. Daves Inc. hired you as a consultant to help them estimate their cost of equity. The yield on the firm's bonds is 6.5%, and Daves' investment bankers believe that the cost of equity can be estimated using a risk premium of 4.0%.
Required:
Question: What is an estimate of Daves' cost of equity from retained earnings?
A) 9.77%
B) 10.02%
C) 10.19%
D) 10.33%
E) 10.50%
Note: Please describe comprehensively and provide step by step solution.