Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 4% per year. Callahan's common stock currently sells for

The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 4% per year. Callahan's common stock currently sells for $27.25 per share; its last dividend was $2.00; and it will pay a $2.08 dividend at the end of the current year.

  1. Using the DCF approach, what is its cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. %
  2. If the firm's beta is 1.9, the risk-free rate is 6%, and the average return on the market is 13%, what will be the firm's cost of common equity using the CAPM approach? Round your answer to two decimal places. %
  3. If the firm's bonds earn a return of 10%, based on the bond-yield-plus-risk-premium approach, what will be rs? Use the midpoint of the risk premium range discussed in Section 10-5 in your calculations. Round your answer to two decimal places. %
  4. If you have equal confidence in the inputs used for the three approaches, what is your estimate of Callahan's cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. %

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Handbook Of Blockchain Digital Finance And Inclusion

Authors: David Lee, Robert H. Deng

1st Edition

0128104414, 978-0128104415

More Books

Students also viewed these Finance questions

Question

3. Is it a topic that your audience will find worthwhile?

Answered: 1 week ago

Question

2. Does the topic meet the criteria specified in the assignment?

Answered: 1 week ago