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COST OF COMMON EQUITY The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 5% per yea-Callahan s common
COST OF COMMON EQUITY The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 5% per yea-Callahan s common stos urrent,se sfor sos per share: its last dividend was $2.20; and it will pay a $2.31 dividend at the end of the current year. a. Using the DCF approach, what is its cost of common equity? Round your answer to two decimal places. Do not round your intermediate calculations. b. If the firm's beta is 0.90, the nsk-free rate is 4%, and the average return on the market is 12%, what will be the firm's costof common eguity using the CAPM approach? Round your answer to two decimal places. c. If the firms bonds earn a return of 10%, based on the bond yield plus risk prem um approach what will be r? Use the idpoint or the risk premium range discussed in Section 10-5 in your calculations. Round your answer to two decimal places. d. If you have equal confidence in the inputs used for the three approaches, what is your estimate of Callahan's cost of common equity? Round your answer to two decimal places. Do not round your intermediate calculations
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