Morenz Paving estimates its cost of common equity by calculating it using three different methods and taking the average of the methods. Morenz's stock is currently selling for $30, and its expected dividend for next year is $1.50. The dividend is expected to grow at a constant rate of 8 percent. The firm also has bonds outstanding that yield 9 percent. Analysts estimate that Morenz's common equity has a risk premium of 2 percent over its bond yield. Morenz's beta is 1.3. If the risk-free rate is 5 percent and the market risk premium is 6 percent, what is the best estimate of Morenz's cost of common equity?

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The Answer of Morenz Paving estimates its cost of common equity by calculating it using three different methods and taking the average of the methods. Morenz's stock is currently selling for $30, and its expected dividend for next year is $1.50. The dividend is expected to grow at a constant rate of 8 percent. The firm also has bonds outstanding that yield 9 percent. Analysts estimate that Morenz's common equity has a risk premium of 2 percent over its bond yield. Morenz's beta is 1.3. If the risk-free rate is 5 percent and the market risk premium is 6 percent, what is the best estimate of Morenz's cost of common equity?

Morenz Paving Estimates Its Cost of Common Equity by Calculating