Question

please answer all parts

The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 7% per year. Callahan's common stock currently sells for $22.25 per shares its last dividend was $2.00; and it will pay a $2.14 dividend at the end of the current year a. Using the DCF approach, what is its cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. % b. IF the firm's beta is 0.B, the risk-free rate is 7 % , and the average returm on the market is 14 % , what will be the firm's cost of common equity using the CAPM approach? Round your answer to two decimal places. % c. If the firm's bonds earn a return of 12%, based on the bond-yield-plus-risk-premium approach, what will be r? Use the midpoint of the risk premium range discussed in Section 10-5 in your calculations. Round your answer to two decimal places % d. If you have equal confidence in the inputs used for the three approaches, what is your estimate of Callahan's cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places

Answer 1

Part a

B6 - X ✓ fc =B1+(B4/B2) В А. 1 Growth rate 2 Current Price 3 Last dividend 4. Next dividend 0.07 22.25 2.14 6 Cost of Equity =B1+(B4/B2)

B6 - X А 1 Growth rate 2 Current Price 3 Last dividend 4. Next dividend в 7% 22.25 2.14 6 Cost of Equity 16.62%

Part b

B5 X ✓ =B2+B1*(B3-B2) А B. 1 Beta 2 Risk free rate 3 Market Return 0.8 0.07 0.14 | 4 Cost of Equity from CAPM =B2+B1*(B3-B2)

B5 1 Beta 2 Risk free rate 3 Market Return 0.8 7% 14% 5 Cost of Equity from CAPM 12.60%