Problemajax inc has common stock outstanding that has a, Ask an Expert

Accounting

Problem:

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.

Requirement:

Question 1: What is the cost of equity for Ajax using the dividend valuation model?

Question 2: What is the cost of equity for Ajax using the capital asset pricing model (CAPM)?

Note: Please provide equation and explain comprehensively and give step by step solution.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91170713

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