Question: The Jackson Company is closely held and, therefore, cannot generate reliable inputs with which to use the CAPM method for estimating a companys cost of

The Jackson Company is closely held and, therefore, cannot generate reliable inputs with which to use the CAPM method for estimating a companys cost of internal equity. Jacksons bonds yield 11.52%, and the firms analysts estimate that the firms risk premium on its stock over its bonds is 3.55%. Based on the bond-yield-plus-risk-premium approach, Jacksons cost of internal equity is:

16.58%

18.84%

15.07%

18.08%

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