Financial Accounting The future earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow 11% per year.Carpetto's common stock currently sells for $23.00 per share; its last dividend was $2.00; and it will pay a $2.14 dividend at theend of the current year.a) Using the DCF approach, what is its cost of common equity?b) If the firm's beta is 1.6, the risk-free rate is 9%, and the average return on the market is 13%, what will be the firm's cost ofcommon equity using the CAPM approach?

To determine the cost of common equity (rsr) for Carpetto Technologies Inc., we will use two…

Answered: The future earnings, dividends, and…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 6% per year. Callahan's common stock currently sells for $22 per share; its last dividend was $2.00; and it will pay a $2.12 dividend at the end of the current year. 1. Using the DCF approach, what is its cost of common equity? 2. If the firm's beta is 1.2, the risk-free rate is 6%, and the average return on the market is 13%, what will be the firm's cost of common equity using the CAPM approach? Round your answer to two decimal places. 3. If the firm's bonds earn a return of 11%, based on the bond-yield-plus-risk-premium approach, what will be rs? Use the midpoint of the risk premium range discussed in Section 10-5 in your calculations.
The future earnings, dividends, and common stock price ofCallahan Technologies Inc. are expected to grow 6% per year. Callahan’s common stockcurrently sells for $22.00 per share, its last dividend was $2.00, and it will pay a $2.12 dividendat the end of the current year.a. Using the DCF approach, what is its cost of common equity?b. If the firm’s beta is 1.2, the risk-free rate is 6%, and the average return on the market is13%, what will be the firm’s cost of common equity using the CAPM approach?c. If the firm’s bonds earn a return of 11%, based on the bond-yield-plus-risk-premiumapproach, what will be rs? Use the midpoint of the risk premium range discussed inSection 10-5 in your calculations.d. If you have equal confidence in the inputs used for the three approaches, what is yourestimate of Callahan’s cost of common equity?
The future earnings, dividends, and common stock price ofCallahan Technologies Inc. are expected to grow 6% per year. Callahan’s common stockcurrently sells for $22.00 per share, its last dividend was $2.00, and it will pay a $2.12 dividendat the end of the current year.a. Using the DCF approach, what is its cost of common equity?b. If the firm’s beta is 1.2, the risk-free rate is 6%, and the average return on the market is13%, what will be the firm’s cost of common equity using the CAPM approach?c. If the firm’s bonds earn a return of 11%, based on the bond-yield-plus-risk-premium approach, what will be rs? d. If you have equal confidence in the inputs used for the three approaches, what is yourestimate of Callahan’s cost of common equity?
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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
Miltmar Corporation will pay a year-end dividend of $4, and dividends thereafter are expected to grow at the constant rate of 6% per year. The risk-free rate is 5%, and the expected return on the market portfolio is 10%. The stock has a beta of 0.66.Required: a. Calculate the market capitalization rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What is the intrinsic value of the stock?

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