Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bon

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Quantitative Problem Barton Industries Estimates Its Cost Of Common Equity By Using Three Approaches The Capm The Bon 1 (25.23 KiB) Viewed 38 times

Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D₁, to be $2.10 and it expects dividends to grow at a constant rate g = 4.0%. The firm's current common stock price, Pa, is $20.00. The current risk-free rate, rar,= 4.3 %; the market risk premium, RPM, 5.9%, and the firm's stock has a current beta, b, = 1.25. Assume that the firm's cost of debt, reis 14.43%. The firm uses a 2.9% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Round your answers to two decimal places. CAPM cost of equity: % Bond yield plus risk premium: % DCF cost of equity: % What is your best estimate of the firm's cost of equity? -Select- Grade it Now Save & Continue Continue without saving