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Hello, please advise, thanks Question: Suppose you are an analyst with the following data: rRF =...

Hello, please advise, thanks

Question:

Suppose you are an analyst with the following data:

rRF = 5.5%

rM - rRF = 6%

b=0.8

D1 = $1.00

P0 = $25.00

g = 6%

firm's bond yield = 6.5%

Please answer the following:

1.What is this firm's cost of equity using the CAPM? 10.30

2.What is this firm's cost of equity using the DCF? 10

3.What is this firm's cost of equity using the bond-yield-plus-risk-premium approach? Use the midrange of the judgmental risk premium for the bond-yield-plus-risk-premium approach.

?? I don't know how to solve.

Note: answer is a percentage, enter only the number

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Answer #1

mid range of the judgmental risk premium = 4% [ please check your reference book]

cost of equity using bond yield plus risk premium approach = bond yield + risk premium = 6.5% + 4% = 10.50%

Answer : 10.50 [Thumbs up please]

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