Using Excel Functions Solve the following: You MUST use both methods of CAPM and dividend growth model DGM, and then take the average mean of CAPM and DGM as the best estimate for the cost of equity R_E, just as what we did in end-of-chapter Ex. 3.)

Calculating Cost of Equity [LO1] Stock in Daenery, s Industries has a beta of .95. The market risk premium is 7 percent, and T-bills arc currently yielding 3.6 percent. The companys most recent dividend was $2.05 per share, and dividends are expected to grow at an annual rate of 4.1 percent indefinitely. If the stock sells for $39 per share, what is your best estimate of the companys cost of equity?

Ex. 7 asks for pre-tax cost of debt (i.e., yield to maturity YTM), so you must apply =YIELD(...) Excel function previously learned from Chapter 7.

7. Calculate Cost of Debt [LO2] Jiminys Cricket Farm issued a 30-year, 7 percent semiannual bond 3 years ago. The bond currently sells for 93 percent of its face value. The companys tax rate is 35 percent.

A. What is the pretax cost of debt?

B. What is the after tax cost of debt?

C. Which is more relevant, the pretax or the after tax cost of debt? Why?