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Big Time Corp. is trying to determine their cost of equity. You would like to use...

Big Time Corp. is trying to determine their cost of equity. You would like to use 3 different approaches. Given the following information, calculate the cost of equity according to the CAPM approach , Bond Yield plus Risk Premium approach, and the Discounted Cashflow approach:

• Current risk-free return is 3.86%

• Market risk premium is 5.75%

• Beta is 0.92

• Bond yield is 10.28%

• The firm's analysts estimate that the firm's risk premium on its stock over its bonds is 4.95%

• Their stock is currently selling for $32.45 per share

• The firm expects to pay a per-share dividend of $1.38 in one year

• Analysts project the firm's growth rate will be a constant 5.72%

Hints for the 3 Approaches:

(1) CAPM Approach: rs = Rf + Betai(market risk premium)

(2) Bond-Yield-Plus-Risk-Premium Approach: rs = Bond Yield + Risk premium

(3) Discounted Cash Flow (DCF) Approach: rs = D0 * [(1 + g)/P0] + g

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