You are estimating the cost of equity for the companys common stock using both CAPM and the constant dividend growth model. Calculate the average of the two estimates based on the following information: Your company just paid a $0.94 cash dividend for the year. There has been a steady growth in dividends of 4.5% per year which analysts expect to continue. The current stock price is $19. You estimate the beta for the company stock at 1.38.

The market has a 10.6 percent rate of return and a risk premium of 7.5 percent.

1) Cost of capital constant dividend growth model: Answer

2) Cost of capital CAPM: Answer

3) Estimated cost of equity