Pan American Airlines' shares are currently trading at$70.65 each. The market yield on Pan Am's debt is 8%and the firm's beta is
0.6.The T-Bill rate is 2%and the expected return on the market is 6.5%.
The company's target capital structure is 70% debt and 30% equity. Pan American Airlines pays a combined federal and state tax rate of 25%.
What is the estimated cost of common equity, employing the constant growth dividend discount model? Assume that Pan Am pays annual dividends and that the last dividend of
$2.35 per share was paid yesterday. Pan Am started paying dividends
4years ago. The first dividend was $1.78 per share.
Employing the constant growth dividend discount model, the estimated cost of common equity for Pan Am is %.
Please refer to below spreadsheet for calculation and answer. Cell reference also provided.
Cell reference -
Hope it will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.
Pan American Airlines' shares are currently trading at$70.65 each. The market yield on Pan Am's debt...
Pan American Airlines' shares are currently trading at $60.06 each. The yield on Pan Am's debt is 7% and the firm's beta is 1.5. The T-Bill rate is 5% and the expected return on the market is 9.5%. The company's target capital structure is 55% debt and 45% equity. Pan American Airlines pays a combined federal and state tax rate of 45%. What is the estimated cost of common equity, employing the Capital Asset Pricing Model (CAPM)?
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