Author Question: The return on the market is 11%. A firm's beta is 1.4, and the risk-free rate is 6%. The stock is ... (Read 51 times)

wrbasek0 · **on:** Apr 25, 2021

The return on the market is 11%. A firm's beta is 1.4, and the risk-free rate is 6%. The stock is currently selling for $18 and the next dividend is expected to be $1.75. The firm's growth rate is 5%. The pre-tax cost of debt is 10% and the equity risk premium is 5%. Estimate the cost of equity by taking an average of the three methods to determine the cost of equity.
◦ 15.0%
◦ 14.2%
◦ 13.0%
◦ 14.7%
◦ 11.5%

marict · **Reply #1 on:** Apr 25, 2021

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