**Problem 12-19 Calculating the Cost of Equity** Benton Industries stock has a beta of 1.3. The company just paid a dividend of $0.30, and the dividends are expected to grow at 4 percent per year. The expected return on the market is 13 percent, and Treasury bills are yielding 5.4 percent. The current price of the company's stock is $71. a. Calculate the cost of equity using the DDM method. *(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)* b. Calculate the cost of equity using the SML method. *(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)* | Method | % | |---------------|------------| | a. DDM method | | | b. SML method | |

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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**Problem 12-19 Calculating the Cost of Equity**

Benton Industries stock has a beta of 1.3. The company just paid a dividend of $0.30, and the dividends are expected to grow at 4 percent per year. The expected return on the market is 13 percent, and Treasury bills are yielding 5.4 percent. The current price of the company's stock is $71.

a. Calculate the cost of equity using the DDM method. *(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)*

b. Calculate the cost of equity using the SML method. *(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)*

| Method        | %          |
|---------------|------------|
| a. DDM method |            |
| b. SML method |            |
Transcribed Image Text:**Problem 12-19 Calculating the Cost of Equity** Benton Industries stock has a beta of 1.3. The company just paid a dividend of $0.30, and the dividends are expected to grow at 4 percent per year. The expected return on the market is 13 percent, and Treasury bills are yielding 5.4 percent. The current price of the company's stock is $71. a. Calculate the cost of equity using the DDM method. *(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)* b. Calculate the cost of equity using the SML method. *(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)* | Method | % | |---------------|------------| | a. DDM method | | | b. SML method | |
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