In: Finance
Find the reasonable final state of Ks using CAPM as well as DCF approach. If the rRF = 7%, RPM = 6%, and the firm’s beta is 1.2, what’s the cost of common equity based upon the CAPM? Also calculate the required rate of return with DCF approach if the current dividend is $4.19 and P0 = $50. The firm has been earning 12% on equity and retaining 40% of its earnings. This situation is expected to continue. (5)