What is cost of equity based on dividend growth model

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Reference no: EM132057453

Taylor Enterprises has 12,000 bonds outstanding that have a 6% coupon rate. The bonds are selling at 98% of face value, pay interest semi-annually, and mature in 28 years. There are 400,000 shares of 9% preferred stock outstanding with a current market price of $83 a share. In addition, there are 1.40 million shares of common stock outstanding with a market price of $54 a share and a beta of 1.2. The common stock paid a total of $1.80 in dividends last year and expects to increase those dividends by 4% annually. The firm’s marginal tax rate is 34%. The overall stock market is yielding 12% and the U.S. Treasury bill rate is 4.0%.

What is the cost of equity based on the dividend growth model, and on the security market line, respectively?

Do not use excel please.

Reference no: EM132057453

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