Bunkhouse Electronics is a recently incorporated firm that makes electronic entertainment systems. Its earnings and dividends havebeen growing at a rate of 36.5%, and the current dividend yield is 8.50%. Its beta is 1.33, the market risk premium is 14.50%, and therisk-free rate is 2.70%.a. Use the CAPM to estimate the firm's cost of equity.Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.b. Now use the constant growth model to estimate the cost of equity.Note: Do not round intermediate calculations. Enter your answer as a whole percent.c. Which of the two estimates is more reasonable?a. Cost of equity%%c. Which of the two estimates is more reasonable?b. Cost of equity

Part a: Cost of Equity using the Capital asset pricing model (CAPM): Given information: Beta = 1.33…

Answered: Bunkhouse Electronics is a recently…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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