Question
The current risk-free rate of return is 3.80% and the current market risk premium is 6.60%. Blue Hamster Manufacturing Inc. has a beta of 0.87.
The current risk-free rate of return is 3.80% and the current market risk premium is 6.60%. Blue Hamster Manufacturing Inc. has a beta of 0.87. Using the Capital Asset Pricing Model (CAPM) approach, Blue Hamsters cost of equity is (10.49, 9.54, 10.02, 12.40)?
Fuzzy Button Clothing Company is closely held and, as a result, cannot generate reliable inputs for the CAPM approach. Fuzzy Buttons bonds yield 10.20%, and the firms analysts estimate that the firms risk premium on its stock relative to its bonds is 3.50%. Using the bond-yield-plus-risk-premium approach, the firms cost of equity is (17.13, 13.01, 13.70, 15.07)
The stock of Cute Camel Woodcraft Company is currently selling for $32.45, and the firm expects its dividend to be $2.35 in one year. Analysts project the firms growth rate to be constant at 5.70%. Using the discounted cash flow (DCF) approach, Cute Camels cost of equity is estimated to be (17.47, 12.29, 13.59, 12.94)
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