3. The expected market return for the upcoming year is 11% and the risk-free rate is expected to be 3.1%. Vandelay Industries just paid a yearly dividend of $3.20. Vandelay has a stock price of $25 and a beta of 1.6. Their dividends are expected to grow at a rate of 4%. a. Calculate the cost of equity using the dividend discount model. (1 Point) Rc D1/D0+ g = 3.33/3.2 + 4% = 1.08 G=4% D0=3.2 D1=3.33 b. Calculate the cost of equity using the CAPM. (1 Point) = Re Rf+(Rm-RB = 3.1 + (11-3.1)1.6 = 15.74 I 4. J. Peterman Catalog has no preferred stock. It is made up of 35% debt and 65% common equity. Peterman has a cost of debt of 3% and a cost of equity of 12%. Assuming no taxes, what is the cost of capital? (2 Points) (35 * 3%) + (.65 * 12%) = 0.0105 + 0.078 = 0.0885 = 8.85%