Canadian Diamonds Group (CDG) has a beta of 0.894. CDG stock is currently selling at $18.50. The market risk premium is expected to be 10% and the current risk-free rate is 5%. CDG has been paying dividends for a long time. Over the past 5 years dividends were as follows:

Date

Dec 31, 2017

Dec 31, 2018

Dec 31, 2019

Dec 31, 2020

Dividend

1.00

1.10

1.10

1.221

a)What is your estimate of the growth rate of dividends?

b)Using the dividend growth model, what is your best estimate of the cost of equity capital for CDG?

c)Based on the CAPM model, what is the cost of equity capital for CDG?

d)You are working for CDG and your manager asks you what cost of equity capital should CDG use for projects? What rate would you recommend?