Question: plz help w quanitive problem wever, we can use growth rates as projected by security analysts, who regularly forecast growth rates of earnings and dividends.

plz help w quanitive problem
plz help w quanitive problem wever, we can use growth rates as

wever, we can use growth rates as projected by security analysts, who regularly forecast growth rates of earnings and dividends. Which method should be used to estimate re? If management has confidence in one method, it would probably use that method's estimate. Otherwise, it might use some weighted average of the three methods. Judgment is important and comes into play here, as is true for most decisions in finance. Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, Du, to be $1.70 and it expects dividends to grow at a constant rate 9 - 3.4%. The firm's current common stock price, Po, is $20.00. The current risk-free rate, TR, - 4.2%; the market risk premium, RP. = 5.6%, and the firm's stock has a current beta, b, - 1.30. Assume that the firm's cost of debt, ra, is 9.72%. The firm uses a 2.6% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yleld-plus-risk premium approach. What is the firm's cost of equity using each of these three approaches? Round your answers to two decimal places. CAPM cost of equity: Bond yield plus risk premium: % DCF cost of equity: What is your best estimate of the firm's cost of equity? % % -Select- The best estimate is the highest percentage of the three approaches. The best estimate is the wverage of the three approaches The best estimate is the lowest percentage of the three approaches

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