According to the bond-yield-plus-risk-premium approach, a firm's cost of retained earnings, rs, can be estimated by adding a risk premium of 3 to 5 percentage points to:

Two firms, a and b, each currently emit 100 tons of chemicals into the air. the government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. the government gives each firm 40 pollution permits, which it can either use or sell to the other firm. it costs firm a $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs firm b $100 for each ton of pollution that it eliminates before it is emitted into the air. after the two firms buy or sell pollution permits from each other, we would expect that firm a will emit a. 100 fewer tons of pollution into the air, and firm b will emit 20 fewer tons of pollution into the air. b. 20 more tons of pollution into the air, and firm b will emit 100 fewer tons of pollution into the air. c. 50 fewer tons of pollution into the air, and firm b will emit 50 fewer tons of pollution into the air. d. 20 fewer tons of pollution into the air, and firm b will emit 100 fewer tons of pollution into the air.