Question $48(30$ points$)$

The earnings, dividends, and stock price of Shelby Inc. are expected to grow at $7\%$ per year in the future. Shelby's common stock sells for $$38$ per share, its last dividend was $$2\mathrm{.}00,$ and the company will pay a dividend of $$2\mathrm{.}14$ at the end of the current year. a$.$ Using the discounted cash flow approach, what is its cost of equity?

$$ A

b$.$ If the firm's beta is $1\mathrm{.}0,$ the riskfree rate is $8\%,$ and the expected return on the market is $13\%,$ then what would be the firm's cost of equity based on the CAPM approach?

$$

A