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Estimate the firm cost of equity

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Question - Bunkhouse Electronics is a recently incorporated firm that makes electronic entertainment systems. Its earnings and dividends have been growing at a rate of 37.5%, and the current dividend yield is 9.50%. Its beta is 1.35, the market risk premium is 15.50%, and the risk-free rate is 2.50%.

Required -

a. Use the CAPM to estimate the firm's cost of equity.

b. Now use the constant growth model to estimate the cost of equity.

Reference no: EM133162283

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