Question
Pan American Airlines' shares are currently trading at $69.47 each. The market yield on Pan Am's debt is 4% and the firm's beta is 0.7.
Pan American Airlines' shares are currently trading at $69.47 each. The market yield on Pan Am's debt is 4% and the firm's beta is 0.7. The T-Bill rate is 4.25% and the expected return on the market is 9.5%. The company's target capital structure is 45% debt and 55% equity. Pan American Airlines pays a combined federal and state tax rate of 25%. 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 $2.05 per share was paid yesterday. Pan Am started paying dividends 6 years ago. The first dividend was $1.48 per share.
Employing the constant growth dividend discount model, the estimated cost of common equity for Pan Am is nothing%. (Round to two decimal places.)
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