A Firm Pays Its Bondholders a 12% Return

Multiple Choice

A firm pays its bondholders a 12% return. Its cost of retained earnings may be estimated by:

A) adding one to three percentage points to the 12% pretax cost of debt.
B) adding three to five percentage points to the 12% pretax cost of debt.
C) multiplying the firm's beta by three to five percentage points and adding it to the 12% pretax cost of debt.
D) None of the above