Intro

Runtan Inc. has just paid an annual dividend of $$0\mathrm{.}45$ per share. Analysts expect the firm's dividends to grow by $3\%$ forever. Its stock price is $$37\mathrm{.}4$ and its beta is $1\mathrm{.}6.$ The risk$-$free rate is $2\%$ and the expected return on the market portfolio is $8\%.$

Part $1$

Attempt $\frac{1}{10}$ for $10pts.$

What is the best guess for the cost of equity? Recall that both Dividend Growth Model and CAPM can be used to find cost of equity. Here assume the best guess is the simple average of the two.