a). According to the CAPM,
kE = Risk-free Rate + [Beta*Market Risk Premium]
= 4.3% + [1.1 * 5.6%]= 4.3% + 6.16% = 10.46%
b). According to the Bond-yield-plus-risk-premium;
kE = Bond Yield + Risk Premium = 8.15% + 3.6% = 11.75%
c). According to the DCF;
kE = [D1 / P0] + g = [$2.10 / $29] + 0.058 = 0.0724 + 0.058 = 0.1304, or 13.04%
d). According to the 3 estimates,
kE = [10.46% + 11.75% + 13.04%] / 3 = 35.25% / 3 = 11.75%
Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM,...
Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk- premium approach, and the DCF model. Barton expects next year's annual dividend, Du, to be $2.10 and it expects dividends to grow at a constant rate OL - 5.8%. The firm's current common stock price, Po, is $29.00. The current risk-free rate, ref, - 4.3%; the market risk premium, RPM,- 5.6%, and the firm's stock has a current beta, b, - 1.1....
Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $2.10 and it expects dividends to grow at a constant rate g = 5.0%. The firm's current common stock price, P0, is $20.00. The current risk-free rate, rRF, = 4.2%; the market risk premium, RPM, = 5.9%, and the firm's stock has a current beta, b, = 1.30....
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Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $1.70 and it expects dividends to grow at a constant rate gl = 5.6%. The firm's current common stock price, Po, is $26.00. The current risk- free rate, RF, = 4.6%; the market risk premium, RPM, = 5.9%, and the firm's stock has a current beta, b, =...
Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $1.70 and it expects dividends to grow at a constant rate g = 3.5%. The firm's current common stock price, P0, is $22.00. The current risk-free rate, rRF, = 4.6%; the market risk premium, RPM, = 5.9%, and the firm's stock has a current beta, b, = 1.3....
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Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, Di, to be $2.10 and it expects dividends to grow at a constant rate gu = 4,3%. The firm's current common stock price, Po, is $22.00. The current risk-free rate, RF, = 4.9%; the market risk premium, RPM, 6.2%, and the firm's stock has a current beta, b, - 1. Assume...
Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, Dı, to be $1.60 and it expects dividends to grow at a constant rate gu = 3.8%. The firm's current common stock price, Po, is $21.00. The current risk-free rate, rRF, = 4.9%; the market risk premium, RPM, = 6.2%, and the firm's stock has a current beta, b, = 1.2....
Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, Dı, to be $1.60 and it expects dividends to grow at a constant rate gu = 3.8%. The firm's current common stock price, Po, is $21.00. The current risk-free rate, rRF, = 4.9%; the market risk premium, RPM, = 6.2%, and the firm's stock has a current beta, b, = 1.2....
Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, Dı, to be $1.60 and it expects dividends to grow at a constant rate gu = 3.8%. The firm's current common stock price, Po, is $21.00. The current risk-free rate, rRF, = 4.9%; the market risk premium, RPM, = 6.2%, and the firm's stock has a current beta, b, = 1.2....