Register
Rossdale Co. stock currently sells for $69.35 per share and has a beta of .90. The market risk premium is 7.30 percent and the risk-free rate is 2.95 percent annually. The company just paid a dividend
472,591 views
0 votes
0 votes
Rossdale Co. stock currently sells for $69.35 per share and has a beta of .90. The market risk premium is 7.30 percent and the risk-free rate is 2.95 percent annually. The company just paid a dividend of $3.65 per share, which it has pledged to increase at an annual rate of 3.35 percent indefinitely. What is your best estimate of the company's cost of equity

User Codygman
by
2.2k points

1 Answer

21 votes
21 votes

Answer:

9.52%

Step-by-step explanation:

Cost of equity can be determined using the capital asset pricing model

he capital asset price model: cost of equity = risk free + (beta x market risk premium )

Risk free return = return on a risk free asset

Beta is a measure of the systematic risk.

Risk premium = market rate of return - risk free rate

2.95% + (0.90 x 7.30%) = 9.52%

User HigoChumbo
by
3.2k points
Ask a Question
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.

1.6m questions

2.0m answers

Other Questions

If the rate of inflation in Japan dramatically increases while the rate of inflation in the United States remains constant, then a. the demand curve for dollars shifts to the left. b. the demand curve
If you buy a one-year bond for $4,000 and the issuer pays you back $5,000 at the end of one year, the interest rate on the bond is
The market value of the equity of Hudgins, Inc., is $582,000. The balance sheet shows $21,000 in cash and $192,000 in debt, while the income statement has EBIT of $93,000 and a total of $137,000 in depreciation
Kylie is risk averse and has $1,000 with which to make a financial investment. She has three options. Option A is a risk-free government bond that pays 5 percent interest each year for two years. Option
From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that Group of answer choices bond interest is deductible for tax purposes. interest must be
Link Copied!