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Medical Associates is a large fopprofit group practice. Its dividends are expected to grow at a constant rate of 7 percent per year into the...

This question was created from Finance- Chapter 09 Problems Kacee.xlsx


What is the cost of equity estimate according to the CAPM?


Medicalflssuciates is alarge foImefit grunp praciice. Its dividends are expected to grow atacunstant
rate of 2? percent per yearintn tllefnreseeahle future. Thefirm‘s last dividend {Dill} was $2, and its
current stock price is $23.Thefirm's beta coefficiem is 1.6; dle rate of retllrnonIEIll—year T—bunds is 9
percent; andtheexpectedratenhemrnnnihemflrket,astepnrtedhyalargefinancialsnficesfirn;is
requirednn the business's new dehtis 1|] percentand itstaxrateisdflpercent.

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