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Calculate the cost of equity using the ddm method

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The SAC stock has a beta of 1.2. The company just paid a dividend of $2.0, and the dividend is expected to grow at 6% per year, indefinitely. The expected market return is 12%, and the risk-free is 4%. The most recent stock price for SAC is $60.

a. Calculate the cost of equity using the DDM method.

b. Calculate the cost of equity using the SML method.

c. Why are your estimates (in [a] and [b]) are so different?

Reference no: EM132774596

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