The future earnings, dividends, and common stock price of Carpetto Technologies

Question

The future earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow 4% per year. Carpetto's common stock currently sells for $27.75 per share; its last dividend was $2.00; and it will pay a $2.08 dividend at the end of the current year.


Using the DCF approach, what is its cost of common equity? Round your answer to two decimal places.
________ %

If the firm's beta is 1.80, the risk-free rate is 3%, and the average return on the market is 13%, what will be the firm's cost of common equity using the CAPM approach? Round your answer to two decimal places.
________ %

If the firm's bonds earn a return of 9%, based on the bond-yield-plus-risk-premium approach, what will be rs? Use the midpoint of the risk premium range discussed in Section 10-5 in your calculations. Round your answer to two decimal places.
________ %

If you have equal confidence in the inputs used for the three approaches, what is your estimate of Carpetto's cost of common equity? Round your answer to two decimal places.
________ %

Explanation / Answer

If the firm's beta is 1.80, the risk-free rate is 3%, and the average return on the market is 13%, what will be the firm's cost of common equity using the CAPM approach? Round your answer to two decimal places. cost of common equity= 3+1.8(13-3)= 21%

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