question 2 - please show your work in excel or paper. You have been hired by...

question 2 - please show your work in excel or paper.

You have been hired by the CFO of Lugones Industries to help estimate its cost of common equity. You have obtained the following data:

(1) rd = yield on the firm’s bonds = 7.00% and the risk premium over its own debt cost = 4.00%.

(2) rRF = 5.00%, Market Risk Premium = 6.00%, and β = 1.25.

(3) D1 = $1.20, P0 = $35.00, and g = 8.00% (constant).

You were asked to estimate the cost of common equity based on the three most commonly used methods and then to indicate the difference between the highest and lowest of these estimates. What is that difference?

Expert Solution

jeff jeffy answered 2 years ago

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