Question
1. The current risk-free rate of return (rRF r RF ) is 4.67% while the market risk premium is 6.63%. The DAmico Company has a
1. The current risk-free rate of return (rRF r RF ) is 4.67% while the market risk premium is 6.63%. The DAmico Company has a beta of 0.92. Using the capital asset pricing model (CAPM) approach, DAmicos cost of equity is ___
2. The Harrison Company is closely held and, therefore, cannot generate reliable inputs with which to use the CAPM method for estimating a companys cost of internal equity. Harrisons bonds yield 10.28%, and the firms analysts estimate that the firms risk premium on its stock over its bonds is 4.95%. Based on the bond-yield-plus-risk-premium approach, Harrisons cost of internal equity is ___
3. Suppose Ford is currently distributing 45% of its earnings in the form of cash dividends. It has also historically generated an average return on equity (ROE) of 16%. Fords estimated growth rate is ___ %
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