Compute what is its cost of common equity, Operation Management

The earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow at 8% per year in the future. Carpetto's common stock sells for $27.75 per share, its last dividend was $1.50, and it will pay a dividend of $1.62 at the end of the current year.

a. Using the DCF approach, what is its cost of common equity? Round your answer to two decimal places.
_____%

b. If the firm's beta is 0.60, the risk-free rate is 6%, and the average return on the market is 13%, what will be the firm's cost of common equity using the CAPM approach? Round your answer to two decimal places.
____ %

c. If the firm's bonds earn a return of 11%, what will rs be based on the bond-yield-plus-risk-premium approach, using the midpoint of the risk premium range as suggested in studies? Round your answer to two decimal places.
____ %

d. Assuming you have equal confidence in the inputs used for the three approaches, what is your estimate of Carpetto's cost of common equity? Round your answer to two decimal places
____%

Posted Date: 2/11/2014 3:49:47 AM | Location : United States







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