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Cost of Common Equity

The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 8% per year. Callahan's common stock currently sells for $20.00 per share; its last dividend was $2.50; and it will pay a $2.70 dividend at the end of the current year.

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

If the firm's beta is 2.10, the risk-free rate is 7%, and the average return on the market is 12%, 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 9%, based on the bond-yield-plus-risk-premium approach, what will be r_s? Use the midpoint of the risk premium range ___________%

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. ___________%

Cost of Retained Earnings May be defined as the opportunity cost in terms of dividends foregone by/withheld from the equity shareholders. Cost of retained earnings is the same as the cost of an equivalent fully subscribed issue of additional shares which is measured by the cost of equity capital. Retained earnings are "dividends withheld", that is, if were in the hands of the investors (shareholders) they could have earned on these by investing somewhere else. The assumption is that the firm is earning "at least equal to ke on these retained earnings. So the cost kr is approximately equal to ke (a little less than ke because of floatation costs are not there, krkke)