Question

Q: Suppose our company has a beta of 1.21. The S&P 500 return is expected to be 2.3% and the current risk-free rate is 0.5%. We have used analysts' estimates to determine that the market believes our dividends will grow at 3.5% per year and our last dividend was $2.4. Our stock is currently selling for $15.65. Please use dividend growth model and CAPM model to estimate our cost of equity. The format of your email reply should be like this: Student number; Assignment8; "Your estimated cost of equity using DGM"; "Your estimated cost of equity using CAPM"; The cost of equity needs to be in percentage and please keep two decimal places.

Answer 1

I have calculated cost of equity for both methods. Please find in below images. Hit the like button took real efforts :)

The CAPM Equation RE = sebe + BL rm- olf) Rez Return on rg B z Beta dm = return of market = ای ولعل هل عليل B = 1.21 rm = 0.023 cele z o.005 Be = 0.005+ 1.21€ (0.023- 0.005) = 0.005 + 1. 21 0.018) z o.o. 5+ 0.0218 20.0268 Returss on equity : 2.68000

I DOM modd bric of Stock Di Reg D, 2 Duidend in Period I Re Return on Equity - g = 0.035 Do = $2.4 - Dia Dolitg) = 2.4 1.035 $2484 0.035 Price = $15.65 lubskeluting 15.65 = 2.484 Re -0.035 15.65 Re -0.5478 -2.484 Re = 0, 1937 Rea 19.37olo I ELTETETTII ULIETTE

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