Barton Industries estimates its cost of common equity by using three approaches:

Question

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 $2.30 and it expects dividends to grow at a constant rate g = 4.1%. The firm's current common stock price, P0, is $28.00. The current risk-free rate, rRF, = 4.9%; the market risk premium, RPM, = 6.2%, and the firm's stock has a current beta, b, = 1.2. Assume that the firm's cost of debt, rd, is 8.13%. The firm uses a 4.2% 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.

Explanation / Answer

Barton Industries estimates its cost of common equity by using three approaches:

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.