Question
In: Finance
The future earnings, dividends, and common stock price of Callahan Tech Inc. are expected to grow...
The future earnings, dividends, and common stock price of Callahan Tech Inc. are expected to grow 6% per year. Callahan’s common stock currently sells for $22/share, its last dividend was $2; and it will pay a $2.12 dividend at the end of the current year (same as early next year – this is your D1).
• If the firm’s beta is 1.2, the risk-free rate is 6%, and the average return on the market is 13%, what will be the firm’s cost of common equity using the CAPM approach?
• If the firm’s bonds earn a return of 11%, based on the bond-yield- plus-premium approach, what will be the cost of common equity? (Use the mid-point range for risk premium. That is the risk premium is 4%, which is in the middle of the range of risk premium going from 3% - 5%)
• If you have equal confidence in the inputs used for the three approaches, what is your estimate for Callahan’s cost of common equity?
Solutions
jeff jeffy answered 4 months agoRelated Solutions
The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow...
The future earnings,
dividends, and common stock price of Callahan Technologies Inc. are
expected to grow 6% per year. Callahan's common stock currently
sells for $28.75 per share; its last dividend was $1.50; and it
will pay a $1.59 dividend at the end of the current year.
Using the DCF
approach, what is its cost of common equity? Do not round
intermediate calculations. Round your answer to two decimal
places.
%
If the firm's beta is
2.1, the risk-free rate...
The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow...
The future earnings, dividends, and common stock price of
Callahan Technologies Inc. are expected to grow 3% per year.
Callahan's common stock currently sells for $21.00 per share; its
last dividend was $2.00; and it will pay a $2.06 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 places. Do not round your
intermediate calculations.
%
If the firm's beta is 1.70, the risk-free...
The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow...
The future earnings, dividends, and common stock price of
Callahan Technologies Inc. are expected to grow 6% per year.
Callahan's common stock currently sells for $29.50 per share; its
last dividend was $2.50; and it will pay a $2.65 dividend at the
end of the current year.
Using the DCF approach, what is its cost of common equity? Do
not round intermediate calculations. Round your answer to two
decimal places.
%
If the firm's beta is 0.7, the risk-free rate...
The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow...
The future earnings, dividends, and common stock price of
Callahan Technologies Inc. are expected to grow 6% per year.
Callahan's common stock currently sells for $29.75 per share; its
last dividend was $2.50; and it will pay a $2.65 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 places. Do not round your intermediate
calculations.
%
If the firm's beta is 0.80, the risk-free...
The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow...
The future earnings, dividends, and common stock price
of Callahan Technologies Inc. are expected to grow 7% per year.
Callahan's common stock currently sells for $20.50 per share; its
last dividend was $2.00, and it will pay a $2.14 dividend at the
end of the current year.
Using the DCF approach, what is its cost of common
equity? Do not round intermediate calculations. Round your answer
to two decimal places.
%
If the firm's beta is 1.5, the risk-free rate...
The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow...
The future earnings, dividends, and common stock price of
Callahan Technologies Inc. are expected to grow 8% per year.
Callahan's common stock currently sells for $29.50 per share; its
last dividend was $2.50; and it will pay a $2.70 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 places. Do not round your intermediate
calculations.
%
If the firm's beta is 1.60, the risk-free...
The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow...
The future earnings, dividends, and common stock price of
Callahan Technologies Inc. are expected to grow 5% per year.
Callahan's common stock currently sells for $28.50 per share; its
last dividend was $2.20; and it will pay a $2.31 dividend at the
end of the current year.
Beta is 1.3, Risk free rate is 3%, and market risk premium is
14%
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 future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow...
The future earnings, dividends, and common stock price of
Callahan Technologies Inc. are expected to grow 8% per year.
Callahan's common stock currently sells for $24.50 per share; its
last dividend was $2.00; and it will pay a $2.16 dividend at the
end of the current year.
A.
Using the DCF approach, what is its cost of common equity? Do
not round intermediate calculations. Round your answer to two
decimal places.
B.
If the firm's beta is 1.3, the risk-free...
The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow...
The future earnings, dividends, and common stock price of
Callahan Technologies Inc. are expected to grow 3% per year.
Callahan's common stock currently sells for $25.25 per share; its
last dividend was $2.00, and it will pay a $2.06 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 places. Do not round your
intermediate calculations.
%
If the firm's beta is 1.50, the risk-free...
The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow...
The future earnings, dividends, and common stock price of
Callahan Technologies Inc. are expected to grow 8% per year.
Callahan's common stock currently sells for $26.25 per share; its
last dividend was $1.50; and it will pay a $1.62 dividend at the
end of the current year.
A. Using the DCF approach, what is its cost of common equity?
Round your answer to two decimal places. Do not round your
intermediate calculations.
B. If the firm's beta is 2.20, the...
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