Cost of equity using CAPM = Risk free rate + beta ( market risk premium)
Cost of equity using CAPM = 4% + 1 ( 9.5%)
Cost of equity using CAPM = 13.5%
Cost of equity using dividend discount model = ( D1 / share price) + growth rate
Cost of equity using dividend discount model = [(1.8 * 1.06) / 38] + 0.06
Cost of equity using dividend discount model = 0.1102 or 11.02%
Average cost of equity = ( 13.5% + 11.02%) / 2
Average cost of equity = 12.26%
Stock In Country Road Industries has a beta of 1. The market risk premlum is 9.5...
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