Stock in CDB Industries has a beta of 1.09. The market risk premium is 7.4 perce

Question

Stock in CDB Industries has a beta of 1.09. The market risk premium is 7.4 percent, and T-bills are currently yielding 4.4 percent. CDB’s most recent dividend was $3.30 per share, and dividends are expected to grow at a 5.4 percent annual rate indefinitely.

If the stock sells for $55 per share, what is your best estimate of CDB’s cost of equity? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

If the stock sells for $55 per share, what is your best estimate of CDB’s cost of equity? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Explanation / Answer

P0 =$55

g=5.4% D0 =3.3

Ke =3.3*(1+5.4%)/55 + 5.4%

Ke=11.72%

Note Its 11.72% and not 11.27%

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

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