Problem 10-4 Cost of Equity with and without Flotation

Javits & Sons' common stock currently trades at $37.00 a share. It is expected to pay an annual dividend of $2.50 a share at the end of the year (D1 = $2.50), and the constant growth rate is 3% a year.

What is the company's cost of common equity if all of its equity comes from retained earnings? Round your answer to two decimal places. %

If the company were to issue new stock, it would incur a 15% flotation cost. What would the cost of equity from new stock be? Round your answer to two decimal places. %

Problem 10-6 Cost of Common Equity

The future earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow 6% per year. Carpetto's common stock currently sells for $20.75 per share; its last dividend was $1.50; and it will pay a $1.59 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. %

If the firm's beta is 1.10, the risk-free rate is 6%, 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 9%, based on the bond-yield-plus-risk-premium approach, what will be rs? 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 Carpetto's cost of common equity? Round your answer to two decimal places. %