Cost of Equity

$2.00

, and the company will pay a dividend of

$2.14

at the end of the current year.\ a. Using the discounted cash flow approach, what is its cost of equity? Round your answer to two decimal places.\

%

\ your answer to two decimal places.\

%

\ decimal places. (Hint: Use the midpoint of the risk premium range.)

%

decimal places.\

%

The earnings, dividends, and stock price of Shelby Inc. are expected to grow at 7\% per year in the future. Shelby's common stock sells for $29.00 per share, its last dividend was $2.00, and the company will pay a dividend of $2.14 at the end of the current year. a. Using the discounted cash flow approach, what is its cost of equity? Round your answer to two decimal places. % b. If the firm's beta is 1.6 , the risk-free rate is 6%, and the expected return on the market is 12%, then what would be the firm's cost of equity based on the CAPM approach? Round vour answer to two decimal places. % c. If the firm's bonds earn a return of 9%, then what would be your estimate of rs using the over-own-bond-yield-plus-judgmental-risk-premium approach? Round your answer to two decimal places. (Hint: Use the midpoint of the risk premium range.) % d. On the basis of the results of parts a through c, what would be your estimate of Shelby's cost of equity? Assume Shelby values each approach equally. Round your answer to two decimal places. %