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Company’s A stock has a beta of 0.38. If the risk-free rate is 6.25% and the market risk premium is 9.29%, what is an estimate of Company’s A cost of equity?
a) Company A has a stock price of $28. The firm will pay a dividend next year of $0.62, and its dividend is expected to grow at a rate of 5.2% per year thereafter. What is your estimate Company’s A cost of equity capital?
b) Company A has a price of $41 and will issue a dividend of $1.97 next year. It has a beta of 2.73, the risk-free rate is 5.6%, and it estimates the market risk premium to be 6.7%. Under the Capital Growth Dividend Model (CDGM), at what rate do you need to expect Company’s A dividends to grow to get the same equity cost of capital as with using the Capital Asset Pricing Model (CAPM)?
c) Company A has a cost of equity of 14.8%, has an effective cost of debt of 5.8%, and is financed 79% with equity and the remaining with debt. What is this firm’s WACC?