Question

ABC company stock has a beta of 1.3. The market risk premium is 6.7 percent, and...

ABC company stock has a beta of 1.3. The market risk premium is 6.7 percent, and the risk free rate is 4 percent. The company’s last dividend was $2.00 per share, and the dividend is expected to grow at 4.8 percent indefinitely. The stock currently sells for $25. What is the company’s cost of capital using the SML approach? Using the dividend growth model?

  

A. 8.81 percent; 8.00 percent

   

B. 12.71 percent; 12.80 percent

   

C. 11.90 percent; 11.56 percent

   

D. 13.00 percent; 13.08 percent

   

E. None of the above.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Ans is 12.71% as per SML and 13.184% as per dividend growth model. Falling under option E i.e. none of the above.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Suppose stock of Company ABC has a beta of 1.2. The risk premium is 8%, and...
Suppose stock of Company ABC has a beta of 1.2. The risk premium is 8%, and the risk-free rate is 6%. ABC’s last dividend was $2 per share, and the dividend is expected to grow at 8% indefinitely. The stock sells for $30. What is ABC’s cost of equity capital?
Stock in Daenerys Industries has a beta of 1.27. The market risk premium is 8 percent,...
Stock in Daenerys Industries has a beta of 1.27. The market risk premium is 8 percent, and T-bills are currently yielding 3 percent. The company's most recent dividend was $1.7 per share, and dividends are expected to grow at a 6.5 percent annual rate indefinitely. If the stock sells for $32 per share, what is your best estimate of the company's cost of equity?
Stock in BCD Industries has a beta of .90.  The market risk premium is 7%, and the...
Stock in BCD Industries has a beta of .90.  The market risk premium is 7%, and the risk-free rate is 3.5%.  BCD’s most recent dividend was $1.80/share and the dividends are expected to grow at 5% annual indefinitely.  The current price is $47/share. What is the cost of equity using the best estimate method?
Stock in Country Road Industries has a beta of 0.87. The market risk premium is 9.5...
Stock in Country Road Industries has a beta of 0.87. The market risk premium is 9.5 percent, and T-bills are currently yielding 4.5 percent. The company's most recent dividend was $1.9 per share, and dividends are expected to grow at a 6 percent annual rate indefinitely. If the stock sells for $38 per share, what is your best estimate of the company's cost of equity? (Do not round your intermediate calculations.)
6. Stock ABC is currently selling for $16.72. It has just paid an annual dividend of...
6. Stock ABC is currently selling for $16.72. It has just paid an annual dividend of $0.80 per share, which is expected to grow at 4.5 percent indefinitely. The risk-free rate is 6 percent. The expected return on the market portfolio is 14 percent with a standard deviation of 17 percent. a) What is the expected return on Stock ABC? b) Is Stock ABC overpriced, underpriced, or correctly priced if it has a beta of 0.6? c) Is Stock ABC...
The risk-free rate is 4%; the market risk premium is 7%. PPR Company’s stock has a...
The risk-free rate is 4%; the market risk premium is 7%. PPR Company’s stock has a beta of 2. The last dividend was $4. The dividend is expected to grow at 6%. What is the expected price in four years? I have a financial calculator if there is a way to do this on there.
The current risk-free rate is 3 percent and the market risk premium is 5 percent. You...
The current risk-free rate is 3 percent and the market risk premium is 5 percent. You are trying to value ABC company and it has an equity beta of 0.7. The company earned $2.00 per share in the year that just ended. You expect the company's earnings to grow 3 percent per year. The company has an ROE of 13 percent. What is the value of the stock? Do not round intermediate calculations. Round your answer to the nearest cent....
Watta Corp has a beta of .80. The market risk premium is 6%, and the risk-free...
Watta Corp has a beta of .80. The market risk premium is 6%, and the risk-free rate is 6%. Watta’s last dividend was $20 per share, and the dividend is expected to grow at 8% indefinitely. The stock currently sells for $45 per share. What’s Watta’s cost of equity capital? From worksheet 1 chapter 14, suppose Watta Corp from #5 has a target debt-equity ratio of 50%. Its cost of debt is 9% before taxes. If the tax rate is...
The risk-free rate of 3.32% and the market risk premium is 6.18%. A stock with a...
The risk-free rate of 3.32% and the market risk premium is 6.18%. A stock with a Beta of 1.79 just paid a dividend of $2.80. The dividend is expected to grow at 24.13% for three years and then grow at 3.42% forever. What is the value of the stock?
The company's stock has a beta equal to 1.22 , the risk-free rate is 4.5 percent,...
The company's stock has a beta equal to 1.22 , the risk-free rate is 4.5 percent, and the market risk premium is 7.0 percent. What is your estimate of the stock's required rate of return? Answer in a percentage without the % sign, and round it to two decimal places, i.e., 10.54 for 10.54% (or 0.1054). A company has just paid a dividend of $ 3 per share, D0=$ 3 . It is estimated that the company's dividend will grow...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT