Cost of common equity by using three approaches

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Reference no: EM131548974

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 $2.50 and it expects dividends to grow at a constant rate gL = 3.8%. The firm's current common stock price, P0, is $26.00. The current risk-free rate, rRF, = 4.4%; the market risk premium, RPM, = 5.7%, and the firm's stock has a current beta, b, = 1.2. Assume that the firm's cost of debt, rd, is 8.63%. The firm uses a 3.7% 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? Do not round intermediate calculations. Round your answers to 2 decimal places. CAPM cost of equity: % Bond yield plus risk premium: % DCF cost of equity: %

Reference no: EM131548974

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