Cost of common equity

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Cost of Common Equity:

African Queen River Tours, Inc. has capitalized on the renewed interest in riverboat travel. Charlie Allnut, the lone financial analyst, estimates the firm's earnings, dividends, and stock price will continue to grow at the historical 5 percent rate. AQRT's common stock is currently selling for $30 per share. The dividend just paid was $2. They pay dividends every year. The rate of return expected on the overall stock market is 12 percent.

a. What is AQRT's cost of equity?

b. If they issue new common stock today and pay flotation costs of $2 per share, what is the cost of new common equity?

c. If AQRT has a risk-free rate of 3 percent and a beta of 1.4, what will be AQRT's cost of equity using the CAPM approach?

Reference no: EM132389610

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