Problem 9-10 Cost of Equity The earnings, dividends, and stock price of Shelby Inc. are expected to grow at 8% per year in the future. Shelby's common stock sells for $25.25 per share, its last dividend was $2.50, and the company will pay a dividend of $2.70 at the end of the current year.

A.

Using the discounted cash flow approach, what is its cost of equity? Round your answer to two decimal places.%

B

If the firm's beta is 1.9, the risk-free rate is 5%, and the expected return on the market is 14%, then what would be the firm's cost of equity based on the CAPM approach? Round your answer to two decimal places. %

C

If the firm's bonds earn a return of 12%, then what would be your estimate of rs using the over-own-bond-yield-plus-judgmental-risk-premium approach? Round your answer to two decimal places. (Hint: Use the midpoint of the risk premium range.) %

D.

On the basis of the results of parts a through c, what would be your estimate of Shelby's cost of equity? Assume Shelby values each approach equally. Round your answer to two decimal places. %