Calculate the equity premium on the following set of data: Stock market return: 12.5% Corporate bond return: 8.2% Short-term T- bills: 4.8% Inflation: 3.1% a. 7.7% b. 9.4% c. 8.2% d. 7.1%
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- NoneGiven the following calculate the Cost of Equity. Beta Equity Risk Premium Pre-tax Yield on Debt Return on the Bond Market Return on the Stock Market Risk Free Rate Tax Weight of Debt in the Total Capital Structure Weight of Equity in the Total Capital Structure 1.5 5.5% 6.0% 4.5% 8.0% 2.5% 25.0% 25.0% 75.0%Calculate Cost of Common Equity using CAPM (Capital Asset Pricing Model), DCF (Discounted Cash Flow Model) and Bond Yield Risk Premium CAPM data: VEC’s beta = 1.2 The yield on T-bonds = 3% Market risk premium = 7% DCF data: Stock price = $27.08 Last year’s dividend (D0) = $2.10 Expected dividend growth rate = 4% Bond-yield-plus-risk-premium data: Risk premium = 5.5% Amount of retained earnings available = $80,000 Floatation cost for newly issued shares = 7%