Cost of Common Equity
The future earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow 8% per year. Carpetto's common stock currently sells for $20.50 per share; its last dividend was $1.50; and it will pay a $1.62 dividend at the end of the current year.
Using the DCF approach, what is its cost of common equity? Round your answer to two decimal laces.
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If the firm's beta is 1.10, the risk-free rate is 5%, and the average return on the market is 14%, what will be the firm's cost of common equity using the CAPM approach? Round your answer to two decimal places.
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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. Round your answer to two decimal places.
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If 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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ANSWER AND EXPLAIN