What is the estimated cost of common equity

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Reference no: EM131916530

Pan American Airlines' shares are currently trading at $56.54 each. The market yield on Pan Am's debt is 7% and the firm's beta is 1.2. The T-Bill rate is 2% and the expected return on the market is 7.75%. The company's target capital structure is 30% debt and 70% equity. Pan American Airlines pays a combined federal and state tax rate of 35%. What is the estimated cost of common equity, employing the constant growth dividend discount model? Assume that Pan Am pays annual dividends and that the last dividend of $2.36 per share was paid yesterday. Pan Am started paying dividends 3 years ago. The first dividend was $1.18 per share.

Reference no: EM131916530

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