Estimating Components of Both WACC and DDM An analyst estimates the cost of debt capital for Abbott Laboratories is ????.0% and that its cost of equity capital is 5.0%. Assume that ABT????s statutory tax rate is ????????%, the risk-free rate is 2.5%, the market risk premium is 5%, the ABT market price is ????65.60 per common share, and its dividends are ????0.???????? per common share.

Required

????????????Compute ABT????s average pretax borrowing rate and its market beta.

????????????Assume that its dividends continue at the current level in perpetuity. ????se the constant perpetuity dividend discount model and the market price to infer the market????s expected cost of equity capital.

(????int???? ????se the equation for dividend discount model with constant perpetuity, on page 12-1????.)

????????????Compare the inferred cost of equity capital from part ???? to the 5.0% estimated cost of equity capital from the analyst. Comment on any difference.