Question the earnings dividends and stock price of carpetto, Ask an Expert

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Question: The earnings, dividends, and stock price of Carpetto Technologies Inc. are expected to grow at 7 percent per year in the future. Carpetto's common stock sells for $23 per share, its last dividend was $2.00, and the company will pay a dividend of $2.14 at the end of the current year.

a. Using the discounted cash flow approach, what is its cost of equity?

b. If the firm's beta is 1.6, the risk-free rate is 9 percent, and the expected return on the market is 13 percent, what will be the firm's cost of equity using the CAPM approach?

c. If the firm's bonds earn a return of 12 percent, what will rs be using the bondyield-plus-risk-premium approach? (Hint: Use the midpoint of the risk premium range.)

d. On the basis of the results of parts a through c, what would you estimate Carpetto's cost of equity to be?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M92333462

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