Question

in contrast, the lincoln company is closely held and, therefore, cannot generate reliable inputs with which to apply the capm method to estimate its cost of internal equity (retained earnings). however, its management knows that its outstanding bonds are currently yielding 8.42%, and the firm’s analysts estimate that the risk premium of its stocks over its bonds is currently 1.48%. as result, lincoln’s cost of internal equity (r

Answer 1

Outstanding bonds are currently yielding 8.42%, and the firm’s analysts estimate that the risk premium of its stocks over its bonds is currently 1.48%. as result, lincoln’s cost of internal equity = 9.9

Cost of equity = Bond's yield + risk premium

Internal equity, in its simplest form, refers to how employees in a firm who hold comparable roles or possess comparable skill sets are paid, whether through salaries or other perks associated with the job. Internal equity, then, is about equal pay for equal work.

Stock in the context of finance refers to the shares into which ownership of a corporation or company is divided.

[1] (In particular, the term "stocks" is also used to describe shares in American English.) A single share of stocks represents a portion of the corporation's ownership in relation to the total number of shares.

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