National Home Rentals has a beta of 1.38, a stock price of $19, and recently paid an annual dividend of $0.94 a share. The dividend growth rate is 4.5 percent. The market has a 10.6 percent rate of return and a risk premium of 7.5 percent. What is the firm's cost of equity?

Question

Quizplus · Accepted Answer

R_e = (0.106 - 0.075) + (1.38 F1F1F1S1F1F1F10 0.075) = 0.1345R_e = [($0.94 F1F1F1S1F1F1F10 1.045)/$19] + 0.045 = 0.0967R_{e Average} = (0.1345 + 0.0967)/2 = 11.56 percent

National Home Rentals Has a Beta of 1