Question
Pan American Airlines' shares are currently trading at $58.49 each. The market yield on Pan Am's debt is 7% and the firm's beta is 0.6.
Pan American Airlines' shares are currently trading at $58.49 each. The market yield on Pan Am's debt is 7%
and the firm's beta is 0.6. The T-Bill rate is 3.25% and the expected return on the market is 9%. The company's target capital structure is 40% debt and 60% equity. Pan American Airlines pays a combined federal and state tax rate of 45%. What is the estimated cost of common equity, employing the constant growth dividend discount model? Assume that Pan Am pays annual dividends and that the last dividend of $2.18 per share was paid yesterday. Pan Am started paying dividends 4 years ago. The first dividend was $1.51 per share.
Employing the constant growth dividend discount model, the estimated cost of common equity for Pan Am is?___%
(Round to two decimal places.)
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