Problem 14-23 Calculating the Cost of Equity [LO1] Ginger Industries stock has a beta of 1.30. The company just paid a dividend of $.30, and the dividends are expected to grow at 4 percent. The expected return on the market is 13 percent, and Treasury bills are yielding 5.1 percent. The most recent stock price for the company is $68. a. Calculate the cost of equity using the DGM 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.) a. DGM method b. SML method % %
Problem 14-23 Calculating the Cost of Equity [LO1] Ginger Industries stock has a beta of 1.30. The company just paid a dividend of $.30, and the dividends are expected to grow at 4 percent. The expected return on the market is 13 percent, and Treasury bills are yielding 5.1 percent. The most recent stock price for the company is $68. a. Calculate the cost of equity using the DGM 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.) a. DGM 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
Section: Chapter Questions
Problem 1PS
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Nikulbhai
![Problem 14-23 Calculating the Cost of Equity [LO1]
Ginger Industries stock has a beta of 1.30. The company just paid a dividend of $.30, and
the dividends are expected to grow at 4 percent. The expected return on the market is
13 percent, and Treasury bills are yielding 5.1 percent. The most recent stock price for the
company is $68.
a. Calculate the cost of equity using the DGM 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.)
a. DGM method
b. SML method
%
%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb72d224d-1fa4-4772-9de5-b9a833e29e0c%2F4d79344d-fc7f-44a0-85e7-572ae11f6edf%2F74irs68_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Problem 14-23 Calculating the Cost of Equity [LO1]
Ginger Industries stock has a beta of 1.30. The company just paid a dividend of $.30, and
the dividends are expected to grow at 4 percent. The expected return on the market is
13 percent, and Treasury bills are yielding 5.1 percent. The most recent stock price for the
company is $68.
a. Calculate the cost of equity using the DGM 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.)
a. DGM method
b. SML method
%
%
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