Cost of equity You have just taken a position as chief financial officer of a large, multinational firm. Your first task is to find an appropriate cost of capital to apply to capital budgeting. Historically, dividend growth has averaged 3.12 % and the last dividend paid was $1.02. The current stock price is

$12.25. The stock currently has a beta of .82 and the market risk premium is 9.8 %. The current T-bill rate is 3.2 %.

1.

What is the estimated cost of equity using the CAPM approach?

2.

What is the estimated cost of equity using the DGM approach?