Cost of Common Equity
The future earnings, dividends, and common stock price ofCarpetto Technologies Inc. are expected to grow 4% per year.Carpetto's common stock currently sells for $25.50 per share; itslast dividend was $2.00; and it will pay a $2.08 dividend at theend of the current year.
- Using the DCF approach, what is its cost of common equity?Round your answer to two decimal places.
%
- If the firm's beta is 1.30, the risk-free rate is 3%, and theaverage return on the market is 12%, what will be the firm's costof common equity using the CAPM approach? Round your answer to twodecimal places.
%
- If the firm's bonds earn a return of 9%, based on thebond-yield-plus-risk-premium approach, what will be rs?Use the midpoint of the risk premium range discussed in Section10-5 in your calculations. Round your answer to two decimalplaces.
%
- If you have equal confidence in the inputs used for the threeapproaches, what is your estimate of Carpetto's cost of commonequity? Round your answer to two decimal places.
%
