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Problem 13-19 Cost of Equity (L04) Bunkhouse Electronics is a recently incorporated firm that makes electronic entertainment systems. Its earnings and dividends have been growing
Problem 13-19 Cost of Equity (L04) Bunkhouse Electronics is a recently incorporated firm that makes electronic entertainment systems. Its earnings and dividends have been growing at a rate of 31.5%, and the current dividend yield is 3.50%. Its beta is 1.23. the market risk premium is 9.50%, and the risk- free rate is 3.70% a. Use the CAPM to estimate the firm's cost of equity. (Do not round Intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Cost of equity 96 b. Now use the constant growth model to estimate the cost of equity. (Do not round Intermediate calculations. Enter your answer as a whole percent.) Cost of equity % c. Which of the two estimates is more reasonable? O CAPM O Growth model
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