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Estimate the firm cost of equity

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A firm's stock currently sells for $65 per share. The firm has just paid its annual dividend of $4 per share and plans to increase its dividend by 3.6 percent per year, indefinitely. The stock has a beta of 1.29, the market risk premium is 7 percent, and the risk-free rate is 2 percent.

Estimate the firm's cost of equity by taking the average of the estimates found under the dividend growth method and the security market line method.

Reference no: EM133120224

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