Problem 12-3 Calculating Cost of Equity [LO 1]

Stock in CDB Industries has a beta of 1.05. The market risk premium is 7 percent, and T-bills are currently yielding 4.0 percent. CDBs most recent dividend was $2.90 per share, and dividends are expected to grow at a 5 percent annual rate indefinitely.

Required:

If the stock sells for $51 per share, what is your best estimate of CDBs cost of equity? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Cost of equity

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