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10-6. Cost of common equity The earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow at 5% per year in
10-6. Cost of common equity The earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow at 5% per year in the future. Carpetto's common stock sells for $20.50 per share, its last dividend was $1.80, and it will pay a dividend of $1.89 at the end of the current year. a. Using the DCF approach, what is its cost of common equity? Round your answer to two decimal places. % b. If the firm's beta is 2.00, the risk-free rate is 8%, and the average return on the market is 12%, what will be the firm's cost of common equity using the CAPM approach? Round your answer to two decimal places. % c. If the firm's bonds earn a return of 9%, what will rs be based on the bond-yield-plus-risk-premium approach, using the midpoint of the risk premium range as suggested in studies? Round your answer to two decimal places. % d. Assuming you have equal confidence in the inputs used for the three approaches, what is your estimate of Carpetto's cost of common equity? Round your answer to two decimal places. %
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