Stock in Country Road Industries has a beta of 0.97. The market risk premium is 10 percent while T-bills are currently yielding 5.5 percent. Country Road's most recent dividend was $1.70 per share, and dividends are expected to grow at a 7 percent annual rate indefinitely. The stock sells for $32 a share. What is the estimated cost of equity using the average of the CAPM approach and the dividend discount approach?

Question

Quizplus · Accepted Answer

R_E = 0.055 + 0.97(0.10) = 0.152R_E = [($1.70 F1F1F1S1F1F1F10 1.07)/$32] + 0.07 = 0.12684375R_{E Average} = (0.152 + 0.12684375)/2 = 13.94 percent

Stock in Country Road Industries Has a Beta of 0