The jackson company is closely held and, therefore, cannot generate reliable inputs with which to use the capm method for estimating a company’s cost of internal equity. jackson’s bonds yield 10.28%, and the firm’s analysts estimate that the firm’s risk premium on its stock over its bonds is 4.95%. based on the bond-yield-plus-risk-premium approach, jackson’s cost of internal equity is:

15.23%

Explanation:

The computation of the cost of internal equity is shown below:

= Bonds yield +  firm’s risk premium on its stock over its bonds

= 10.28% + 4.95%

= 15.23%

It is a combination of the bond yield and the risk premium which is over its bond.  

We take these two items so that the cost of internal equity could be correctly computed

the correct answer is b.)

answer; importance to people; or acceptance;