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Rossdale Co. stock currently sells for $71.11 per share and has a beta of 1.14. The market risk premium is 7.90 percent and t

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Answer #1

Cost of equity as per growth model=(D1/Current price)+Growth rate

=[(3.97*1.0375)/71.11]+0.0375=9.54225847%

Cost of equity as per CAPM=risk free rate+Beta*market risk premium

=3.33+(7.9*1.14)=12.336%

Best estimate of Cost of equity=(9.54225847+12.336)/2

=10.94%(Approx).

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