Calculating the Cost of Equity Floyd Industries equity has a beta of 1.50. The company has just paid a dividend of £0.80, and dividends are expected to grow at 5 per cent.

The expected return of the market is 12 per cent, and Treasury bills are yielding 5.5 per cent. The most recent share price for Floyd is £61.

(a) Calculate the cost of equity using the DCF method.

(b) Calculate the cost of equity using the SML method.

(c) Why do you think your estimates in

(a) and

(b) are so different?