Attempts: ' Store: [4 2. Problem 9-10 (Cost of Equity) Cost of Equity The earnings, dividends, and stock price of Shelby Inc. are expected to grow at...
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Attempts: ' Store: [4 2. Problem 9-10 (Cost of Equity) Cost of Equity The earnings, dividends, and stock price of Shelby Inc. are expected to grow at 8% per year in the future. Shelby‘s common stock sells for $28 per share, its last dividend was $1.50, and the company will pay a
dividend of $1.62 at the end of the current year. 3. Using the discounted cash flow approach, what is its cost of equity? Round your answer to two decimal places.
% b. If the firm's beta is 1.4, the risk-free rate is 7%, and the expected return on the market is 11%, then what would be the firrn's cost of equity based on the CAPM approach? Round your answer to two decimal
places. % c. If the firrn's bonds earn a return of 9%, then what would be your estimate of rs using the own-bond-yield-plus—judgmental-risk-prerniurn approach? (Hint: Use the mid-point of the risk premium range.) Round
your answer to two decimal places. "/0 d. On the basis of the results of parts a-c, what would be your estimate of Shelby‘s cost of equity? Assume Shelby values each approach equally. Round your answer to two decimal places.
%

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Answer a) Cost of Equity = 13.79% b) Cost of... View the full answer

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a. 13.36% b.... View the full answer

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