1. Cost of Equity: CAPM

Booher Book Stores has a beta of 1.0. The yield on a 3-month T-bill is 4.5% and the yield on a 10-year T-bond is 7%. The market risk premium is 5%. What is the estimated cost of common equity using the CAPM? Round your answer to two decimal places.

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2. After-Tax Cost of Debt

Calculate the after-tax cost of debt under each of the following conditions:

a) Interest rate of 12%; tax rate of 0%. Round your answer to two decimal places.

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b) Interest rate of 12%; tax rate of 25%. Round your answer to two decimal places.

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c) Interest rate of 12%; tax rate of 35%. Round your answer to two decimal places.

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3. Cost of Equity: Dividend Growth

Summerdahl Resorts' common stock is currently trading at $38.00 per share. The stock is expected to pay a dividend of $2.25 a share at the end of the year (D1 = $2.25), and the dividend is expected to grow at a constant rate of 3% a year. What is the cost of common equity? Round your answer to two decimal places.

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