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Current share market price= $20.25 per share

Current share dividend= $1.12 per share

Current share earnings= $2.48 per share

Beta= 0.90

Expected market risk premium= 6.4%

Risk free rate [20 year treasury bonds] = 5.2%

Past ten years earnings per share:

20x1=$1.39                 20x6=$1.95

20x2=$1.48                 20x7=2.12

20x3=1.60                   20x8=2.26

20x4=1.68                   20x9=2.40

20x5=1.79                   20y0=2.48

This past earning growth trend is expected to go on for the foreseeable future.  The dividend payout ratio has remained approximately constant over the last ten years & is expected to remain at current levels for the foreseeable future.

Compute the cost of equity capital using the following methods:

[A] Constant growth rate dividend capitalization model approach

[B] The capital asset pricing model approach

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M919081

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