Q2: You have just graduated from MBA program with finance major. Immediately after graduation you have been hired as a financial analyst in a highly prestigious listed company name Cornejo. Your first assignment is to estimate the cost of equity capital and stock price of the company. Your assistant gathered the following information for you:

• The dividend per share (DPS) record of the company over the last 5 years is as follows:

Year	Dividend per Share (DPS)
t-5	7.80
t-4	9.4
t-3	10.85
t-2	11.2
t-1	11.7
t0	10

• Risk free rate is 3.5 percent
• Market risk premium is 5 percent
• Cornejo Co has an estimated beta of 1.10
• The companys dividend growth rate is expected to remain constant for the foreseeable future.

Required:

1. Estimate the companys cost of equity capital using CAPM.
2. Draw and briefly define the security market line (SML).
3. Extrapolate a past growth rate. (
4. Estimate the current price of the companys shares.
5. State clearly any limitations and assumptions that you made in your calculations.