Fiji light industries shares have a beta of 12 the company

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Fiji Light Industries shares have a beta of 1.2. The company has just paid a dividend of $0.80, and the dividends are expected to grow at 6%. The expected return of the market is 12.5% and the risk-free rate is 5%. The most recent share price for Fiji Light's ordinary shares is $72.

a. Calculate the cost of equity using the dividend growth model method.

b. Calculate the cost of equity using the SML method.

c. Why do you think your estimates in a and b are so different?

Reference no: EM13567461

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