Problem 10-6 Cost of Common Equity The future earnings, dividends, and common st

Question

Problem 10-6
Cost of Common Equity

The future earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow 8% per year. Carpetto's common stock currently sells for $20.50 per share; its last dividend was $1.50; and it will pay a $1.62 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 1.10, the risk-free rate is 5%, and the average return on the market is 14%, 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 11%, 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.
%

ANSWER AND EXPLAIN

Explanation / Answer

As per Chegg Guidelines we answer one question per post. I have answered more than 1 question. Kindly post remaining questions in separate post to get the best answers ke =D1/P0 +   g ke = 1.62/20.50 + 8% ke= 7.90% + 8% ke = 15.90% ke = Rf + B(Rm - Rf) ke= 5% + 1.10 (14%-5%) ke= 5% + 9.9% ke = 14.9%

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