chapter 10

7. Quantitative Problem: 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 $1.50 and it expects dividends to grow at a constant rate g = 4.8%. The firm's current common stock price, P0, is $28.00. The current risk-free rate, rRF, = 4.5%; the market risk premium, RPM, = 5.8%, and the firm's stock has a current beta, b, = 1.2. Assume that the firm's cost of debt, rd, is 7.01%. The firm uses a 3.8% 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.

CAPM cost of equity:	%
Bond yield plus risk premium:	%
DCF cost of equity:	%