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Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk premium approach, and the DCF model. Barton
Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $2.30 and it expects dividends to grow at a constant rate gL = 4.396. The firm's current common stock price, Po, is $28.00. The current risk-free rate, rRF.-4.396; the market risk premium, RPM, = 5.6%, and the firm's stock has a current beta, b, = 1.1. Assume that the firm's cost of debt, rd, is 7.89%. The firm uses a 3.6% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach, what is the firm' ach of these three approaches? Do not round intermediate calculations. Round your answers to 2 decimal places. cost of equity using e CAPM cost of equity: Bond-Yield-Plus-Risk-Premium: DCF cost of equity
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