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What is the firm cost of equity

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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 $1.70 and it expects dividends to grow at a constant rate g = 5.1%. The firm's current common stock price, P0, is $20.00. 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, = 1.3. Assume that the firm's cost of debt, rd, is 9%. 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? 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: EM131710373

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