The Go-Blue Company has common stock outstanding that has a current price of $20 per share and the most recent dividend $1.50/share. G0-Blue’s dividends are expected to
grow at a rate of 5% per year, forever.
The expected risk-free rate of interest is 4%, and the expected
market Risk premium is 8%. The beta on Go-Blue ’s stock is 1.2.

a. What is the cost of equity for Go-Blue using the constant dividend growth model?

b. What is the cost of equity for Go-Blue using the capital asset pricing model?

c. Calculate the overall cost of equity. (Average of the two methods).

Answer rating: 100% (QA)

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