Question: 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
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, Di, to be $1.80 and it expects dividends to grow at a constant rate 9 = 5.5%. The firm's current common stock price, Po, is $30.00. The current risk-free rate, nu. -4,8%; the market risk premium, RPM, - 6.1%, and the firm's stock has a current bata, b, - 1. Assume that the firm's cost of debt, tais 7,1%. The firm unes a .1% risk premium when arriving at a batipork estimate of its cost of equity using the bond-yield-plus-risk premium approach. What is the firm's cost of equity using each of these three approaches? Round your answers to 2 decimal places % CAPM cost of equity: Bond yield plus risk premium: DCF cost of equity: % %
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
