Question: I need help with problem C & D. he earnings, dividends, and stock price of Shelby Inc. are expected to grow at 4% per year
I need help with problem C & D.
he earnings, dividends, and stock price of Shelby Inc. are expected to grow at 4% per year in the future. Shelby's common stock sells for $26.50 per share, its last dividend was $2.00, and the company will pay a dividend of $2.08 at the end of the current year.
- Using the discounted cash flow approach, what is its cost of equity? Round your answer to two decimal places. %
- If the firm's beta is 1.8, the risk-free rate is 5%, and the expected return on the market is 14%, then what would be the firm's cost of equity based on the CAPM approach? Round your answer to two decimal places. %
- If the firm's bonds earn a return of 11%, then what would be your estimate of rs using the over-own-bond-yield-plus-judgmental-risk-premium approach? Round your answer to two decimal places. (Hint: Use the midpoint of the risk premium range.) %
- On the basis of the results of parts a through c, what would be your estimate of Shelby's cost of equity? Assume Shelby values each approach equally. Round your answer to two decimal places. %
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