Hii expert please provide correct answer general Accounting The earnings, dividends, and stock prices areexpected to grow at 7% per year in the future.Common stock sells for $23 per share its lastdividend was $2.00 and the company will pay adividend of $2.14 at the end of the current year.Using the discounted cash flow approach, whatis the equity?

Step 1: Define Gordon Growth Model (Dividend Discount Model)The Gordon Growth Model, a variation of…

Answered: The earnings, dividends, and stock…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter7: Corporate Valuation And Stock Valuation

Section: Chapter Questions

Problem 18MC

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The earnings, dividends, and stock price of Shelby Inc. are expected to grow at 7%per year in the future. Shelby’s common stock sells for $23 per share, its last dividend was $2.00, and the company will pay a dividend of $2.14 at the end of thecurrent year.a. Using the discounted cash flow approach, what is its cost of equity?b. If the firm’s beta is 1.6, the risk-free rate is 9%, and the expected return on themarket is 13%, what will be the firm’s cost of equity using the CAPMapproach?c. If the firm’s bonds earn a return of 12%, what will rs be using the bond-yieldplus-risk-premium approach? (Hint: Use the midpoint of the risk premiumrange.)d. On the basis of the results of parts a through c, what would you estimateShelby’s cost of equity to be
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The earnings, dividends, and stock prices are expected to grow at 7% per year in the future. Common stock sells for $23 per share its last dividend was $2.00 and the company will pay a dividend of $2.14 at the end of the current year. Using the discounted cash flow approach, what is the equity?