The earnings, dividends, and stock price of Shelby are expected to grow at $7\%$ per year in the future. Shelby's common stock sells for $$23$ per share, its last dividend was $$2\mathrm{.}00,$ and the company will pay a dividend of $$2\mathrm{.}14$ at the end of the current year. Using the discounted cash flow approach, what is the cost of equity? If the firm's beta is $1\mathrm{.}6,$ the risk$-$free rate is $9\%,$ and the expected return on the market is $13\%,$ then what would be the firm's cost of equity based on the CAPM approach?

If the firm's own 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? $($Hint: Use a $4\%$ risk premium.$)$

On the basis of the results of parts a through c$,$ what would be your estimate of Shelby's cost of equity?