Bunkhouse Electronics is a recently incorporated firm that makes electronic entertainment systems. Its earnings and dividends have
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Question:
Bunkhouse Electronics is a recently incorporated firm that makes electronic entertainment systems. Its earnings and dividends have been growing at a rate of and the current dividend yield is Its beta is the market risk premium is and the riskfree rate is
Use the CAPM to estimate the firms cost of equity.
Note: Do not round intermediate calculations. Enter your answer as a percent rounded to decimal places.
Now use the constant growth model to estimate the cost of equity.
Note: Do not round intermediate calculations. Enter your answer as a whole percent.
Which of the two estimates is more reasonable?
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