The future earnings, dividends, and common stock price of IT Technologies Inc. are expected to grow 6% per year. IT Technologiess

common stock currently sells for $22.00 per share; its last dividend was $2.00; and it will pay a $2.12 dividend at the end of the current

year.

a.Using the DCF approach, what is its cost of common equity?

b.If the firms beta is 1.2, the risk free rate is 6%, and the average return on the market is 13%, what will be the firms cost of common

equity using the CAPM approach?