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 $1.55 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 = [($1.55 × 1.07)/$32] + 0.07 = 0.1218281R_{E Average} = (0.152 + 0.1218281)/2 = 13.69 percent

Stock in Country Road Industries Has a Beta of 0