6

Bunkhouse Electronics is a recently incorporated firm that makes electronic entertainment systems. Its earnings and dividends have been growing at a rate of 33.0%, and the current dividend yield is 5.00%. Its beta is 1.26 , the market risk premium is 11.00%, and the risk-free rate is 3.40%. a. Use the CAPM to estimate the firm's cost of equity. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. b. Now use the constant growth model to estimate the cost of equity. Note: Do not round intermediate calculations. Enter your answer as a whole percent. c. Which of the two estimates is more reasonable