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Question: Barton Industries estimates Its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D_1, to be $2.00 and it expects dividends to grow at a constant rate g = 3.2%. The firm's current common stock price, P_0, is $20.00. The current risk-free rate, r_RF, = 4.7%; the market risk premium, RP_M, = 6%, and the firm's stock has a current beta, b, = 1.2. Assume that the Firm's cost of debt, r_D, is 8.55%. The firm uses a 4% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Round your answers to 2 decimal places.

CAPM cost of equity:

Bond yield plus risk premium:

DCF cost of equity:

What is your best estimate of the firm's cost of equity?

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M92781809

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