1 2 3 5 5 P14-17 Modified (changes from the text are in bold) The common stock for M&M Corporation currently sells for $45, and the dividend paid last year was $2.75 and is expected to grow at an annual rate of 4.0% in the future. a. (Ignore the first part of this question in the text and answer only the following) What is the estimated cost of common equity to the firm using the dividend growth model? b. M&M's CFO has asked her financial analyst to estimate the firm's cost of common equity using the CAPM as a way of validating the earlier calculations. The risk-free rate of interest is currently 2.0 percent, the market risk premium is estimated to by 8 percent, and M&M's beta is 1.05. What is your estimate of the firm's cost of common equity using this method? 7 * 9 10 11 13 Parta 14 15 16 market price DO G 18 DI Calculation Cost of Common Equity using div growth 19 20 21 22 23 Part b 35 20 27 Risk-free rate Market risk premium Beta Hent Market premspected return on the marketportal Cost of Common Equity using CAPM see formula 14-4 on page 460 20 30 31