Based on the CAPM approach, what is the cost of equity from retained earnings?

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The cost of equity from retained earnings can be estimated using the Capital Asset Pricing Model (CAPM). The CAPM approach states that the expected return on a security is equal to the risk-free rate of return plus a risk premium, which is determined by multiplying the market return and beta.

Using this information, we can calculate the cost of equity as follows:
rE = rRF + (RPm – rRF) * b
rE = 4.10% + (5.25% – 4.10%) * 1.30
rE = 7.80%.
Therefore, the cost of capital from retained earnings according to CAPM approach is 7.8%.

It should be noted that CAPM relies on simplifying assumptions such as all investors have rational expectations and perfect markets, which may not necessarily hold true in reality. Furthermore, CAPM does not provide any guidance for how a company should manage their capital structure or what sort of investments they should make with their retained earnings—these decisions must still be made based on additional data than just its cost of equity from retained earnings. Additionally, it is important to consider other factors that could influence an investor’s decision such as political conditions and macroeconomic climate both locally and internationally when estimating the cost of capital from retained earning . Finally, since returns are uncertain in real life settings, it might be helpful for financial professionals to develop sensitivity analysis scenarios under various economic conditions in order to evaluate different potential outcomes associated with any proposed investment strategy utilizing fund retention techniques or related offerings.