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Bunkhouse electronics is a recently incorporated firm that

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Bunkhouse Electronics is a recently incorporated firm that makes electronic entertainment systems. Its earnings and dividends have been growing at a rate of 20%, and the current dividend yield is 2%. Its beta is 1.1, the market risk premium is 9%, and the risk-free rate is 4%.

a-1.

Calculate the firm's cost of equity by using the Dividend Discount Model.
  Cost of equity %
a-2.

Calculate the firm's cost of equity by using the CAPM. (Do not round intermediate calculations. Round your answer to 1 decimal place.)
  Cost of equity %
b.

Which estimate seems more reasonable to you?

   


Dividend Discount Model

CAPM

Reference no: EM13570978

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