Cost of Equity The earings, dividends, and stock price of Shelby Inc. are expected to grow...

 

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Cost of Equity The earings, dividends, and stock price of Shelby Inc. are expected to grow at 6% per year in the future. Shelby's common stock sells for $28 per share, its last dividend was $2.50, and the company will pay a dividend of $2.65 at the end of the current year. a. Using the discounted cash flow approach, what is its cost of equity? Round your answer to two decimal places. % b. If the firm's beta is 1.3, the risk-free rate is 7%, and the expected return on the market is 12%, then what would be the firm's cost of equity based on the CAPM approach? Round your answer to two decimal places. % c. If the firm's bonds earn a return of 10%, then what would be your estimate of rs using the own-bond-yield-plus-judgmental-risk-premium approach? (Hint: Use a 4% risk premium.) Round your answer to two decimal places. % d. On the basis of the results of parts a-c, what would be your estimate of Shelby's cost of equity? Assume Shelby values each approach equally. Round your answer to two decimal places. % Cost of Equity The earings, dividends, and stock price of Shelby Inc. are expected to grow at 6% per year in the future. Shelby's common stock sells for $28 per share, its last dividend was $2.50, and the company will pay a dividend of $2.65 at the end of the current year. a. Using the discounted cash flow approach, what is its cost of equity? Round your answer to two decimal places. % b. If the firm's beta is 1.3, the risk-free rate is 7%, and the expected return on the market is 12%, then what would be the firm's cost of equity based on the CAPM approach? Round your answer to two decimal places. % c. If the firm's bonds earn a return of 10%, then what would be your estimate of rs using the own-bond-yield-plus-judgmental-risk-premium approach? (Hint: Use a 4% risk premium.) Round your answer to two decimal places. % d. On the basis of the results of parts a-c, what would be your estimate of Shelby's cost of equity? Assume Shelby values each approach equally. Round your answer to two decimal places. %

Answer rating: 100% (QA)

a Using the discounted cash flow approach the cost of equity can be calculated using the dividend di... View the full answer