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Calculate the cost of equity by two separate methods

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The equity of Sky Properties has a beta of 1.25. The earnings of Sky are expected to grow at 5 per cent indefinitely. Sky maintains a constant payout ratio. The risk-free rate is 4 per cent and the expected return on the market is 8 per cent. Its last dividend was 20 cents per shares and a share is currently selling for $5.25.

Calculate the cost of equity by two separate methods, first using the CAPM, and secondly using the dividend growth model.

Reference no: EM132798404

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