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Suppose you must estimate the cost of equity for a firm, and you have the following data: r RF = 5.5%; r M r RF

Suppose you must estimate the cost of equity for a firm, and you have the following data: rRF = 5.5%; rM rRF = 6%; b = 0.8; D1 = $1.00; P0 = $25.00; g = 6%; and rd = the firm's bond yield = 6.5%. What is this firm's cost of equity using the bond-yield-plus-risk-premium approach? Use a 4.5% judgmental risk premium in your calculation.

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10.3%

10.5%

10%

11%

9%

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