Cost of common equity based on the constant-growth model

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Reference no: EM131020003

You have obtained the following data for a firm: (1) Rd = yield on the firm's bonds = 7.00% and the risk premium over its own debt cost = 4.00%. (2) Rf = 3.00%, RPM = 6.00%, and beta = 1.25. (3) D0 = $1.20, P0 = $35.00, and g = 6.00% (constant). You were asked to estimate the cost of common equity based on the constant-growth model and CAPM and then to indicate the difference between the two. What is that difference?

Reference no: EM131020003

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