Question

Pan American​ Airlines' shares are currently trading at ​$69.47 each. The market yield on Pan​ Am's debt is 4​% and the​ firm's beta is 0.7. The​ T-Bill rate is 4.25​% and the expected return on the market is 9.5​%. The​ company's target capital structure is 45​% debt and 55​% equity. Pan American Airlines pays a combined federal and state tax rate of 25​%. What is the estimated cost of common​ equity, employing the constant growth dividend discount​ model? Assume that Pan Am pays annual dividends and that the last dividend of ​$2.05 per share was paid yesterday. Pan Am started paying dividends 6 years ago. The first dividend was ​$1.48 per share.  

Employing the constant growth dividend discount​ model, the estimated cost of common equity for Pan Am is nothing​%. ​(Round to two decimal​ places.)

Answer 1

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