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Suppose that a financial analyst collected the following data: rate of return on T-bill is 2.5%...

Suppose that a financial analyst collected the following data: rate of return on T-bill is 2.5%

Market risk premium is = 5%; company's beta is 0.7; D1 = $2.00; current stock price is

$30.00; future growth of dividends is 6%.

a. What is this firm’s cost of equity using the DCF approach?

Solutions

Expert Solution

Cost of equity using DCF = (D1/ share price) + growth rate

Cost of equity using DCF = (2 / 30) + 0.06

Cost of equity using DCF = 0.1267 or 12.67%

jeff jeffy answered 2 years ago
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