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problem: The earnings, dividends, & common stock price of Carpetto Technologies Inc. are expected to grow 11 percent per year in the future. Carpetto's common stock sells for $23 per share, its last dividend was $2.00, & it will pay a dividend of $2.14 at the end of the current year.

[A] Using the DCF approach, determine its cost of common equity?

[B] If the company's beta is 1.6, the risk-free rate is 9%, & the average return on the market is 13%, what will be the firm's cost of common equity using the CAPM approach?

[C] If the company's bonds earn a return of 12%, what will Rs are based on the bond yield plus risk premium approach, using the midpoint of the risk premium range?

[D] Suppose you have equal confidence in the inputs used for the three (3) approaches, find out Carpetto's cost of common equity?

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  • Category:- Cost Accounting
  • Reference No.:- M921947

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