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Stock in Country Road Industries has a beta of 1.62. The market risk premium is 8.2...

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Finance

Stock in Country Road Industries has a beta of 1.62. The marketrisk premium is 8.2 percent while T-bills are currently yielding2.9 percent. Country Road's last paid annual dividend was $1.87 pershare and dividends are expected to grow at an annual rate of 3.8percent indefinitely. The stock sells for $25 a share. What is theestimated cost of equity using the average return of the CAPM andthe dividend discount model?

Answer & Explanation Solved by verified expert
3.9 Ratings (427 Votes)
Information providedRisk free rate 29Beta 162Market risk premium 82Last dividend 187Dividend growth rate 38Current stock price 25The cost of equity is calculated using both the capital assetpricing    See Answer
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Transcribed Image Text

Stock in Country Road Industries has a beta of 1.62. The marketrisk premium is 8.2 percent while T-bills are currently yielding2.9 percent. Country Road's last paid annual dividend was $1.87 pershare and dividends are expected to grow at an annual rate of 3.8percent indefinitely. The stock sells for $25 a share. What is theestimated cost of equity using the average return of the CAPM andthe dividend discount model?

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