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Average cost of equity using two methods

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A company has a marginal tax rate is 40 percent. The company can raise debt at a 10.9 percent interest rate. The risk-free rate is 5%, the return on the stock market is 12.5% and the firm has a beta of 1.75. The last dividend paid was $1.00 and its growth rate expected in earnings and dividends is 6 percent. The firm plans to finance all capital expenditures with 40 percent debt and 60 percent equity with a stock price is $8.75.

Can you help me solve for the average cost of equity using two methods: 1) CAPM & 2) the discounted dividend approach?

Also, can you please help me figure out the firms overall weighted average cost of capital (WACC)?

Reference no: EM132199871

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