Engineering Economy 7th Edition by Leland Blank ,Anthony Tarquin

Exercise 7

Common stocks issued by Meggitt Sensing Sys­tems paid stockholders $0.93 per share on an aver­age price of $18.80 last year. The company expects to grow the dividend rate at a maximum of 1.5% per year. The stock volatility is 1.19, and other stocks in the same industry are paying an average of 4.95% per year dividend. U.S Treasury bills are returning 4.5%. Determine the company's cost of equity capital last year using
a) the dividend method and b) the CAPM.