What would be your estimate of shelbys cost of equity

Reference no: EM13257419

The earnings, dividends, and common stock price of Shelby Inc. are expected to grow at 4% per year in the future. Shelby's common stock sells for $24.50 per share, its last dividend was $2.50, and the company will pay a dividend of $2.60 at the end of the current year. Using the discounted cash flow approach, what is its cost of equity? If the firm's beta is 2.0, the risk-free rate is 4%, and the expected return on the market is 14%, then what would be the firm's cost of equity based on the CAPM approach? If the firm's bonds earn a return of 10%, and analysts estimate the market risk premium is 3 to 5 percent, then what would be your estimate of rs using the over-own-bond-yield-plus-judgmental-risk-premium approach? (Hint: Use the midpoint of the risk premium range). On the basis of the results of parts a through c, what would be your estimate of Shelby's cost of equity? Assume Shelby values each approach equally.

Reference no: EM13257419

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