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Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's
Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $2.30 and it expects dividends to grow at a constant rate g=4.2%. The firm's current common stock price, P0, is $27.00. The current risk-free rate, rRF=4%; the market risk premium, RPM=5.3%, and the firm's stock has a current beta, b,=1.2. Assume that the firm's cost of debt, rd, is 8.24%. The firm uses a 3.3% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Round your answers to 2 decimal places. What is your best estimate of the firm's cost of equity? Blank 4\%. Round your answers to 2 decimal places
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