Compute the firm''s cost of equity by using the capm

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Reference no: EM1358278

Bunkhouse Electronics is a recently incorporated firm that makes electronic entertainment systems. Its earnings and dividends have been growing at a rate of 20%, and the current dividend yield is 2%. Its beta is 1.1, the market risk premium is 9%, and the risk-free rate is 4%.

1. Calculate the firm's cost of equity by using the Dividend Discount Model.

2. Calculate the firm's cost of equity by using the CAPM. (Do not round intermediate calculations. Round your answer to 1 decimal place.)

3. Which estimate seems more reasonable to you?

Reference no: EM1358278

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