What is estimated cost of common equity

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Reference no: EM131591346

Pan American Airlines' shares are currently trading at $68.75 each. The market yield on Pan Am's debt is 4?% and the firm's beta is 0.9. The T-Bill rate is 4.25% and the expected return on the market is 8%. The company's target capital structure is 35% debt and 65% equity. Pan American Airlines pays a combined federal and state tax rate of 37%. What is the estimated cost of common equity, employing the constant growth dividend discount model Assume that Pan Am pays annual dividends and that the last dividend of $2.20 per share was paid yesterday. Pan Am started paying dividends 4 years ago. The first dividend was $1.67per share.

Employing the constant growth dividend discount model, the estimated cost of common equity for Pan Am is __%. (Round to two decimal places.)

Reference no: EM131591346

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