$14-17.($Computing the cost of common equity$)($Related to Checkpoint $14\mathrm{.}2$ on page $458$ and Checkpoint $14\mathrm{.}3$ on page $461)$ The common stock of the M&M Corporation currently sells for $$60,$ and the dividend paid last year was $$2\mathrm{.}25.$ Five years ago the firm paid $$2\mathrm{.}10$ per share, and dividends are expected to grow at the same annual rate in the future as they did over the past five years.

a$.$ What is the rate of growth in the firm's dividends and the corresponding cost of common equity to the firm using the constant dividend growth rate model?

b$.$ M&M$\text{'}$s CFO has asked his 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 $4$ percent, the market risk premium is estimated to be $5$ percent, and M&M$\text{'}$s beta is $80.$ What is your estimate of the firm's cost of common equity using this method?

P$14-17$ Modified $($changes from the text are in bold$)$

The common stock for M&M Corporation currently sells for $$65,$ and the dividend paid last year was $$2\mathrm{.}50$ and is expected to grow at an annual rate of $5\mathrm{.}0\%$ 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$\text{'}$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 $2\mathrm{.}5$ percent, the market risk premium is estimated to by $7$ percent, and M&M$\text{'}$s beta is $\mathrm{.}95.$ What is your estimate of the firm's cost of common equity using this method?

Part a

$[P_0(curr$ price$)],[D_0],[g],[D_1]$

Cost of Common Equity using div growth

Part b

Risk$-$free rate

Market risk premium

Hint: Market risk premium $=$ Expected return on the market porffoilo$-$ isikflee lute

Beta

Cost of Common Equity using CAPM

Please solve for Excel