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The future earnings , dividends, and common stoc price of Carpetto Tech Inc. are expected to grow 7% per year. Carpetto's common stock currently sells for $23.00 per share. its last dividend was $2.00 ; and it will pay a $2.14 dividend at the end of the current year.
1. Using a DCF approach, what is its cost of common equity?
2. If the firm's beta is 1.6, the risk free rate is 9%, and the average return on the market is 13%, what will be the firms cost of common equity using the CAPM approach?
3. If the firms bonds earn a return of 12%, based on the bond yield plus risk premium approach, what will be Rs ?
4. If you have equal confidence in the inputs used for the 3 approaches , what is your estimate of Carpetto's cost of common equity?
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