Reference no: EM132566007
The earnings, dividends, and stock price of Shelby Inc. are expected to grow at 6% per year in the future. Shelby's common stock sells for $25 per share, its last dividend was $2.00, and the company will pay a dividend of $2.12 at the end of the current year.
-Using the discounted cash flow approach, what is its cost of equity? Round your answer to two decimal places. %
2.If the firm's beta is 1.2, the risk-free rate is 10%, and the expected return on the market is 13%, then what would be the firm's cost of equity based on the CAPM approach? Round your answer to two decimal places.
3.f the firm's bonds earn a return of 10%, then what would be your estimate of rs using the own-bond-yield-plus-judgmental-risk-premium approach? (Hint: Use the mid-point of the risk premium range.) Round your answer to two decimal places.
4.On the basis of the results of parts a-c, what would be your estimate of Shelby's cost of equity? Assume Shelby values each approach equally. Round your answer to two decimal places.
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