Ginger Industries stock has a beta of 1.08. The company just paid a dividend of $.85, and
Question:
Ginger Industries stock has a beta of 1.08. The company just paid a dividend of $.85, and the dividends are expected to grow at 4 percent. The expected return on the market is 11.3 percent, and Treasury bills are yielding 3.4 percent.
The most recent stock price for the company is $72.
a. Calculate the cost of equity using the DDM.
b. Calculate the cost of equity using the CAPM.
c. Why do you think your estimates in (a) and (b) are so different?
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Step by Step Answer:
a To calculate the cost of equity using the Dividend Discount Model DDM we can use the formula Cost ...View the full answer
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Related Book For 
Corporate Finance
ISBN: 9781265533199
13th International Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
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