(Computing the cost of common equity) (Related to Checkpoint 14.2 on page 490 and Checkpoint 14.3 on...
Question:
(Computing the cost of common equity) (Related to Checkpoint 14.2 on page 490 and Checkpoint 14.3 on page 493) Brian Computers PLC is listed on the Alternative Investment Market (AIM) at the London Stock Exchange. The current market price of their shares is £80 per share. Last year they paid a dividend of £4 per share. This year they plan to pay £4.20 and expect the dividend to grow by the same rate in the foreseeable future as it did between last year and this year. The finance director of Brian Computers has also collected some information from the market that suggests the treasury rates in the United Kingdom are currently 1.5 percent and the market return is estimated to be 9.5 percent. His calculations also suggest that Brian Computers has a beta of 0.9. What will be the cost of equity for Brian Computers using
a. the Constant Dividend Growth Model?
b. the Capital Asset Pricing Model?
Step by Step Answer:
Financial Management Principles And Applications
ISBN: 9781292222189
13th Global Edition
Authors: Sheridan Titman, Arthur Keown, John Martin