A company is trying to estimate its cost of equity. The risk free rate of return is 4.75% while the required rate of return is 9.75%. The company's beta is 1.2. The current stock price is $45.00 and the last dividend paid was $2.25; the expected constant growth rate is 5.00%.
What is the estimated cost of equity using the Capital Asset Pricing Model?
What is the estimated cost of equity using the Discounted Cash Flow approach?
Why do the two methods yield different answers?
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