Cost of common equity by using three approaches

Assignment Help Financial Management

Reference no: EM131056249

Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $2.10 and it expects dividends to grow at a constant rate g = 4.3%. The firm's current common stock price, P0, is $20.00. The current risk-free rate, rRF, = 4%; the market risk premium, RPM, = 5.3%, and the firm's stock has a current beta, b, = 1.2. Assume that the firm's cost of debt, rd, is 9.28%. The firm uses a 3.3% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Round your answers to 2 decimal places. CAPM cost of equity: % Bond yield plus risk premium: % DCF cost of equity: % What is your best estimate of the firm's cost of equity?

Reference no: EM131056249

Questions Cloud

What was the closing price for stock : What was the closing price for this stock that appeared in yesterday’s paper? If the company currently has 34 million shares of stock outstanding, what was net income for the most recent four quarters?

Execute the alias command and view the list of aliases : CIS 240 - Execute the alias command and view the list of aliases available to your user identity. Note that this list will vary from distribution to distribution and

An investment project has annual cash inflows : An investment project has annual cash inflows of $5,400, $6,500, $7,300, and $8,600, and a discount rate of 10 percent. What is the discounted payback period for these cash flows if the initial cost is $9,000?

Expects dividends to grow at a constant rate : Barton Industries expects next year's annual dividend, D1, to be $2.10 and it expects dividends to grow at a constant rate g = 4.9%. The firm's current common stock price, P0, is $23.30. If it needs to issue new common stock, the firm will encounter ..

Cost of common equity by using three approaches : Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $2.10 and it expects dividends to grow at a..

Dividends are expected to grow-what is current stock price : The Jackson–Timberlake Wardrobe Co. just paid a dividend of $1.55 per share on its stock. The dividends are expected to grow at a constant rate of 6 percent per year indefinitely. Investors require a return of 14 percent on the company's stock. What ..

Develop a brief competition analysis for your product : Develop a brief competition analysis for your products' key competition within the country (include at least 3 key competitors in your discussion)

What is the firms after-tax cost of debt : 5 years ago, Barton Industries issued 25-year noncallable, semiannual bonds with a $1,550 face value and a 6% coupon, semiannual payment ($46.5 payment every 6 months). The bonds currently sell for $845.87. If the firm's marginal tax rate is 40%, wha..

Advertising depends upon the characteristics : In other 200 words, explain why the amount that firms spend on advertising depends upon the characteristics of their products.

User Account

All Pages