Question

Southern Home Cookin' just paid its annual dividend of $.65 a share. The stock has a market price of $26 and a beta of 0.8. The return on the U.S. Treasury bill is 4 percent and the market risk premium is 13 percent. What is the cost of equity?

Answer 1

Here the COE (cost of equity) is 14.4%

Step-by-step explanation:

Given information -

Beta- .8

Treasury bill return - 4%

Market risk premium - 13%

Formula for taking out cost of equity -

Return on treasury bill + Beta x Market risk premium

= 4% + .8 x 13%

= .04 + .8 x .13

= .04 + .104

= .144

Multiplying by 100 to make it in percentage

= .144 x 100

= 14.4%