Bond yield plus risk premium approach

Reference no: EM1357600

The earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow at 7 percent per year in the future. Carpetto's common stock sells for $23 per share, its last dividend was $2.00, and it will pay a dividend of $2.14 at the end of the current year.

If the firm's bonds earn a return of 12 percent, what will Rs be based on the bond-yield-plus-risk-premium approach, using the midpoint of the risk premium range?

Reference no: EM1357600

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