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Cost of common equity

The earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow at 5% per year in the future. Carpetto's common stock sells for $20.50 per share, its last dividend was $1.80, and it will pay a dividend of $1.89 at the end of the current year.

a. Using the DCF approach, what is its cost of common equity? Round your answer to two decimal places.

b. If the firm's beta is 2.00, the risk-free rate is 8%, and the average return on the market is 12%, what will be the firm's cost of common equity using the CAPM approach? Round your answer to two decimal places.

c. If the firm's bonds earn a return of 9%, what will rs be based on the bond-yield-plus-risk-premium approach, using the midpoint of the risk premium range as suggested in studies? Round your answer to two decimal places.

d. Assuming you have equal confidence in the inputs used for the three approaches, what is your estimate of Carpetto's cost of common equity? Round your answer to two decimal places.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M9867392

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