The future earnings, dividends, and common stock price of Kahn Inc. are expected to grow...
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The future earnings, dividends, and common stock price of Kahn Inc. are expected to grow 8% per year. Kahns common stock currently sells for $25.00 per share; its last dividend was $2.00; and it will pay a $2.5 dividend at the end of the current year. a. Using the DCF approach, what is its cost of common equity? b. If the firms beta is 1.2, the risk-free rate is 10%, and the average return on the market is 14%, what will be the firms cost of common equity using the CAPM approach? c. If the firms bonds earn a return of 14%, based on the bond-yield-plus-risk-premium approach, what will be rs? Use 4% as the midpoint of the risk premium range. d. If you have equal confidence in the inputs used for the three approaches, what is your estimate of Kahns cost of common equity?
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