Management at Hirschman Engineering has asked you to determine the cost of equity capital based on the

Question:

Management at Hirschman Engineering has asked you to determine the cost of equity capital based on the company's common stock. The company wants you to use two methods: the dividend method and the CAPM. Last year, the first year for dividends, the stock paid $0.75 per share on the average of $11.50 on the New York Stock Exchange. Management hopes to grow the dividend rate at 3% per year. Hirschman Engineering stock has a volatility that is higher than the norm at 1.3. If safe investments are returning 5.5% and the 3% growth on common stocks is also the premium above the risk-free investments that Hirschman Engineering plans to pay, calculate the cost of equity capital using the two methods.

Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing... Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...