Estimating Components of both WACC and DDM Analysts estimate the cost of debt capital for...
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Estimating Components of both WACC and DDM Analysts estimate the cost of debt capital for Abbott Laboratories (NYSE: ABT) is 2.56% and that its cost of equity capital is 4.1%. Assume that ABT's marginal tax rate is 36%, the risk-free rate is 4.6%, the market risk premium is 5.0%, the ABT market price is $47.73 per common share, and its dividends are $1.18 per common share. (a) Compute ABT's average borrowing rate and its market beta. (Round your answers to one decimal place.) Average borrowing rate = Answer
% Market beta = Answer
(b) Assume that its dividends continue at the current level in perpetuity. Use the constant perpetuity dividend discount model to infer the market's expected cost of equity capital. (Hint: Use Price per share = Dividends per share/Cost of equity capital.) (Round your answer to one decimal place.) Answer
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