Question

Suppose your company has a beta of 1.5. The market risk premium is expected to be 9% and the current risk-free rate is 3%. We have used analysts estimates to determine that the market believes our dividends will grow at 5% per year and our last dividend was $2.5. Our stock is currently selling for $45. What is the cost of equity under the CGDM?
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Answer #1

cost of equity=(D1/Current price)+Growth rate

=(2.5*1.05)/45+0.05

which is equal to

=10.83%(Approx).

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