1. What is the bond-yield-plus-risk-premium estimate for XYZ's cost of common equity?
"Bond yield + RP" premium 4%
market interest rate on XYZ's debt 10%
Bond-yield-plus-risk-premium estimate =
2. What is your final estimate for rs?
METHOD ESTIMATE
CAPM 14.20%
DCF 13.80%
rd + RP 14.00%