Ajax, Inc. has common stock outstanding that has a market price of $48 per share. Last year's dividend was $2.25 and is expected to grow at a rate of 4% per year, forever. The expected risk-free rate of interest is 2%, and the expected market premium is 5.5%. The company's beta is 1.2.
1. What is the cost of equity for Ajax using the dividend valuation model?
2. What is the cost of equity for Ajax using the capital asset pricing model (CAPM)?