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Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D₁, to be $1.90 and it expects dividends to grow at a constant rate g₁ = 3.9%. The firm's current common stock price, Po, is $28.00. The current risk-free rate, RF, = 4.8%; the market risk premium, RPM, = 6.1%, and the firm's stock has a current beta, b, = 1.3. Assume that the firm's cost of debt, rd, is 7.61%. The firm uses a 4.1% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Do not round intermediate calculations. Round your answers to two decimal places. CAPM cost of equity: Bond-Yield-Plus-Risk-Premium: DCF cost of equity: % % % If you are equally confident of all three methods, then what is the best estimate of the firm's cost of equity? -Select-

Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D₁, to be $1.90 and it expects dividends to grow at a constant rate g₁ = 3.9%. The firm's current common stock price, Po, is $28.00. The current risk-free rate, RF, = 4.8%; the market risk premium, RPM, = 6.1%, and the firm's stock has a current beta, b, = 1.3. Assume that the firm's cost of debt, rd, is 7.61%. The firm uses a 4.1% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Do not round intermediate calculations. Round your answers to two decimal places. CAPM cost of equity: Bond-Yield-Plus-Risk-Premium: DCF cost of equity: % % % If you are equally confident of all three methods, then what is the best estimate of the firm's cost of equity? -Select-

Essentials Of Investments
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
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Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D₁, to be $1.90 and it expects dividends to grow at a constant rate g₁ = 3.9%. The firm's current common stock price, Po, is $28.00. The current risk-free rate, RF, = 4.8%; the market risk premium, RPM, = 6.1%, and the firm's stock has a current beta, b, = 1.3. Assume that the firm's cost of debt, rd, is 7.61%. The firm uses a 4.1% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Do not round intermediate calculations. Round your answers to two decimal places. CAPM cost of equity: Bond-Yield-Plus-Risk-Premium: DCF cost of equity: % % % If you are equally confident of all three methods, then what is the best estimate of the firm's cost of equity? -Select-
Transcribed Image Text:Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D₁, to be $1.90 and it expects dividends to grow at a constant rate g₁ = 3.9%. The firm's current common stock price, Po, is $28.00. The current risk-free rate, RF, = 4.8%; the market risk premium, RPM, = 6.1%, and the firm's stock has a current beta, b, = 1.3. Assume that the firm's cost of debt, rd, is 7.61%. The firm uses a 4.1% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Do not round intermediate calculations. Round your answers to two decimal places. CAPM cost of equity: Bond-Yield-Plus-Risk-Premium: DCF cost of equity: % % % If you are equally confident of all three methods, then what is the best estimate of the firm's cost of equity? -Select-
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