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Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the...

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Finance

Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $1.90 and it expects dividends to grow at a constant rate g = 5.4%. The firm's current common stock price, P0, is $25.00. The current risk-free rate, rRF, = 4.5%; the market risk premium, RPM, = 5.9%, and the firm's stock has a current beta, b, = 1.10. Assume that the firm's cost of debt, rd, is 12.11%. The firm uses a 2.9% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Round your answers to two decimal places.

CAPM cost of equity: %
Bond yield plus risk premium: %
DCF cost of equity: %

What is your best estimate of the firm's cost of equity?

-Select-The best estimate is the highest percentage of the three approaches.The best estimate is the average of the three approaches.The best estimate is the lowest percentage of the three approaches.

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