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What will be the firm cost of common equity

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The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 6% per year. Callahan's common stock currently sells for $25.75 per share; its last dividend was $2.50; and it will pay a $2.65 dividend at the end of the current year.

Problem a. If the firm's beta is 0.6, the risk-free rate is 6%, and the average return on the market is 14%, what will be the firm's cost of common equity using the CAPM approach? Round your answer to two decimal places.%

Problem b. If the firm's bonds earn a return of 12%, based on the bond-yield-plus-risk-premium approach, what will be rs? Use the midpoint of the risk premium range discussed in Section 10-5 in your calculations. Round your answer to two decimal places. %

Reference no: EM132735360

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