Bunkhouse Electronics is a recently incorporated firm that makes electronic entertainment systems. Its earnings and dividends have been growing at a rate of 40.0%, and the current dividend yield is 12.00%. Its beta is 1.40, the market risk premium is 18.00%, and the risk-free rate is 2.00%.   a. Use the CAPM to estimate the firm’s cost of equity. (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. (Do not round intermediate calculations. Enter your answer as a whole percent.)

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
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Bunkhouse Electronics is a recently incorporated firm that makes electronic entertainment systems. Its earnings and dividends have been growing at a rate of 40.0%, and the current dividend yield is 12.00%. Its beta is 1.40, the market risk premium is 18.00%, and the risk-free rate is 2.00%.

 

a. Use the CAPM to estimate the firm’s cost of equity(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. (Do not round intermediate calculations. Enter your answer as a whole percent.)

 

 
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