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Estimate of the firms cost of common equity

Question: Your firm has been hired to help ABC Company to estimate the cost of common equity. The yield on the firm's bonds is 5.75%, and your firm's economists believe that the cost of common equity can be estimated using a risk premium of 2.5% over a firm's own cost of debt. What is an estimate of the firm's cost of common equity from retained earnings?

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Accounting Basics: Estimate of the firms cost of common equity

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