Cost of Equity question 9-10

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 $23 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 the cost of equity? (Answer is 16.3%-show all work and formulas)

(b) If the firms beta is 1.6, the risk free rate is 9% and the expected return on the market is 13%, then what would be the firm's cost of equity based on the CAPM approach? (answer is 15.4%--show all work and formulas)

(c) if the firm's bonds earn a return of 12% then what would be your estimate of rs using the own bond yeild plus judgement risk premium approach? (Hint use the midpoint of the risk premium range)--(Answer is 16% show all work and formula)

(d) on the basis of the results of parts a through c what would be your estimate of Shelbys cost of equity?