eBook Problem Walk Through The future earnings, dividends, and common stock price of Callahan Technologies Inc are expected to grow 4 per year Callahan's common stock currently sells for $25 75 per share its last dividend was $2 50 and it will pay a $2 60 dividend at the end of the current year Using the DCF approach, what is its cost of common equity Do not round intermediate calculations Round your answer to two decimal places If the firm's beta is 2 0, the risk free rate is 7 , and the average return on the market is 13 , what will be the firm's cost of common equity using the CAPM approach Round your answer to two decimal places If the firm's bonds earn a return of 11 , based on the bond yield plus risk premium approach, what will be r s Use the midpoint of the risk premium range discussed in Section 10 5 in your calculations Round your answer to two decimal places If you have equal confidence in the inputs used for the three approaches, what is your estimate of Callahan's cost of common equity Do not round intermediate calculations Round your answer to two decimal places

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Oct 03, 2024

eBook Problem Walk-Through The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 4% per year. Callahan's common stock

eBook Problem Walk-Through

The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 4% per year. Callahan's common stock currently sells for $25.75 per share; its last dividend was $2.50; and it will pay a $2.60 dividend at the end of the current year.

Using the DCF approach, what is its cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places.

%
If the firm's beta is 2.0, the risk-free rate is 7%, and the average return on the market is 13%, what will be the firm's cost of common equity using the CAPM approach? Round your answer to two decimal places.

%
If the firm's bonds earn a return of 11%, based on the bond-yield-plus-risk-premium approach, what will be r_s? Use the midpoint of the risk premium range discussed in Section 10-5 in your calculations. Round your answer to two decimal places.

%
If you have equal confidence in the inputs used for the three approaches, what is your estimate of Callahan's cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places.