Stock in dragula industries has a beta of 1.1. the market risk premium is 7 percent, and t-bills are currently yielding 5.00 percent. the company’s most recent dividend was $1.40 per share, and dividends are expected to grow at a 7.0 percent annual rate indefinitely. if the stock sells for $35 per share, what is your best estimate of the company’s cost of equity? (do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Solved
Show answers
More tips
- C Computers and Internet How to Learn to Type Fast?...
- A Art and Culture Who Said The Less We Love a Woman, the More She Likes Us ?...
- F Family and Home Parents or Environment: Who Has the Most Influence on a Child s Upbringing?...
- H Health and Medicine Is it true that working with a computer is harmful to your eyesight?...
- H Health and Medicine Boosting Immunity: A Complete Guide on How to Improve Your Body’s Natural Defenses...
- P Philosophy Unidentified Flying Object - What is the Nature of this Phenomenon?...
- C Computers and Internet How to Teach Older Generations to Work with Computers?...
- G Goods and services How to Choose a Coffee Maker? The Ultimate Guide for Coffee Lovers...
- C Computers and Internet Porn Banner: What It Is and How to Get Rid Of It?...
- F Food and Cooking How many stages of coffee roasting are there?...
Answers on questions: Business
- B Business Normative and positive statements The following table contains statements that provide some analysis of policies that address taxes. Categorize each of these statements as...
- E English How many grade 6 pupils participated in the survey?...
- H Health 1. what is the range thegranitational force ? (a) 10 m (b) 10-15square (c) infinite (d) 10-10 square m...
- P Physics Ihave a few questions. how would density change if volume is not calculated correctly? #2. a golf pall and ping pong ball are almost the same volume. however, a golf ball has...
- C Computers and Technology Difference between the four generations of computers in a tabular form...
- M Mathematics In May, Susana earned $40 from pet-sitting. In June, her earnings increase 200%. How much does she earn in June? Use the math you already know to help understand the problem....
Ответ:
11.99%
Explanation:
For computing the estimation of cost of equity, first we have to determine the cost of equity based on CAPM which is shown below:
In this question, we apply the Capital Asset Pricing Model (CAPM) formula which is shown below
Expected rate of return = Risk-free rate of return + Beta × (Market rate of return - Risk-free rate of return)
= 5% + 1.1 × 7%
= 5% + 7.7%
= 12.7%
The (Market rate of return - Risk-free rate of return) is also known as market risk premium and the same is shown in the computation part.
Now the cost of equity based on growth rate which is shown below:
= Current year dividend ÷ price + Growth rate
where,
The current dividend would be
= $1.40 + $1.40× 7%
= $1.40 + $0.098
= $1.498
The other things would remain the same
So, the cost of common equity would be
= $1.498 ÷ $35 + 7%
= 0.0428 + 0.07
= 11.28%
Now the best estimation would be
= (12.7% + 11.28%) ÷ 2
= 11.99%
Ответ:
bssoishenejekdisbebe