Question

The cost of equity using the CAPM approach The current risk-free rate of return (TRF) is 4.67% while the market risk premium is 6.63%. The Jefferson Company has a beta of 0.92. Using the capital asset pricing model (CAPM) approach, Jefferson's cost of equity is 11.3085% The cost of equity using the bond yield plus risk premium approad 10.779 11.847% The Harrison Company is dosely held and, therefore, cannot generate relis cost of internal equity. Harrison's bonds yield 11.52%, and the firm's anal 4.95%. Based on the bond-yield-plus-risk-premium approach, Harrison's th which to use the CAPM method for estimating a company's that the firm's risk premium on its stock over its bonds is equity is: 9.693% 15.65% 16.47% 19.76% 18.12% The cost of equity using the discounted cash flow or dividend growth) approach Ford Enterprises's stock is currently selling for $45.56 per share, and the firm expects its per share to be $2.35 in one year, Analysts project the firm's growth rate to be constant at 5.72%. Estimating the cost of equity using the discounted cash flow (or dividend growth) approach, what is Ford's cost of internal equity? 13.60% 10.34% 10.88% 11.42%

Answer 1

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ke - Microsoft Excel (Product Activation Failed) Add-Ins View - 2x Dr General SF Wrap Text Merge Merge & Center - Center File Home Insert Page Layout Formulas Data Review % Cut Calibri -11AA = = = Ea Copy Paste Format Painter B I U B- A Clipboard Font CA513 fev СВ 4:0 .00 . Insert Delete Format $ -% % Number Conditional Format Formatting as Table Styles Cell Styles Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select Alignment Cells СА Ċ Formula Bar CC CE CF CG C C 499 500 501 CAPM APPROACH ke = Rf + beta(Rm-Rf) 1 ke = 4.67% +0.92(6.63%) = Rm-Rf = RISK PREMIUM = 6.63%, Rf =4.67% 10.77% 502 503 504 505 2 BOND YIELD PLUS APPROACH ke = BOND RATE + RISK PREMIUM ke = 11.52% +4.95% = 506 16.47% 3 DISCOUNTED CASH FLOW APPROACH D1 = 2.35, PO =45.56, g = 5.72% 507 508 509 510 511 512 513 514 515 ke = D1/PO+g 4 ke = 2.35/45.56 + 0.0572= 10.88% GROWTH RATE = RETENTION RATIO X ROE = b X ROE 5 GROWTH RATE = 60% X 12% = 7.200% DIVIDEND PAYOUT = 40%, SO RETENTION RATIO = 60% 516 517 HE Rea convexity DGM betaport future INDEX INTL CAP BUD LEASING PV, FV, ANNUITY DIR right clean KE CAPM UTILITY, SHARPE, beta ferences: KN82 RESI el - YIELD bond portfolio cap stru WACC BO 130% O * K *0 S E ENG 22-11-2019