Problem 10-6 Cost of Common Equity

The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 6% per year. Callahan's common stock currently sells for $27.75 per share; its last dividend was $2.00; and it will pay a $2.12 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 1.30, 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 11%, 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 Callahan's cost of common equity? Round your answer to two decimal places. Do not round your intermediate calculations. %

Hide Feedback

Can someone please check this answer and please give the correct answer in bold and the explanation in regular. Please be careful to read the question fully.

eBook Problem 10-6 o Cost of Common Equity earnings, dividends, and as S2.00; and it ill pay a $2.12 dividend The future common stock price of Calahan Technologies Inc. are expected to gro 6% per year. Callahan's common stock currently sells for $27.75 per share; its last dividend at the end of the current year a. Using the DOF approach, what is its cost of common equity? Round your answer to two decimal places. Do not round your intermeciate calculations 13.64 % b. If the firm's beta is 1.30, the risk-free fate 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. 15.10 (0% c. If the firm's bonds ear a eturn of 11% 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 d. 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. *% 15.58 Partially Correet Check My Work (No more tries available) Icon Key