Watsonville Farming has just paid an annual dividend of $1.5 per share. Analysts expect the firm's dividends to grow by 7% forever. Its stock price is $73.34 and its beta is 1.6. The risk-free rate is 3% and the expected return on the market portfolio is 8%. Its bonds have a yield to maturity of 4%, and the risk-premium of Watsonville's stock over its bonds is 6%.

What is the best guess for the cost of equity?

 

Answer rating: 100% (QA)

To calculate the cost of equity using the dividend growth model we need to use the ... View the full answer