D????????-5????. Sensitivity of Cost of Capital and Intrinsic Value Estimates At January 2016 (the end of its fiscal year 2015), analysts estimate Best Buy Co. Inc.’s beta at 1.54. The company is expected to pay $1.12 in annual dividends to its common shareholders in the foreseeable future. Assume that the market risk premium equals 5% and that the risk-free rate equals 2.5%.
Required

a. Compute the range of estimates of Best Buy’s cost of equity capital if the analysts’ estimate of beta is off by as much as 1/???? 0.1.

b. Upon further consideration, we realize that a growth in dividends is necessary for an intrinsic value estimate. Determine the range of Best Buy intrinsic value estimates that are possible utilizing the cost of capital estimates from part a and an assumption that the growth rate in dividends could range from 0% to 2%.