Question

Berta Industries stock has a beta of 1.25. The company just paid a dividend of $.40, and the dividends are expected to grow at 5 percent. The expected return on the market is 12 percent, and Treasury bills are yielding 5.5 percent. The most recent stock price for Berta is $72.
a. Calculate the cost of equity using the DCF method.
b. Calculate the cost of equity using the SML method.
c. Why do you think your estimates in (a) and (b) are so different?



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  • CreatedMarch 13, 2014
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