The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow...

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Finance

The future earnings, dividends, and common stock price ofCallahan Technologies Inc. are expected to grow 4% per year.Callahan's common stock currently sells for $26.50 per share; itslast dividend was $2.00; and it will pay a $2.08 dividend at theend of the current year.
Using the DCF approach, what is its cost of common equity?Round your answer to two decimal places. Do not round yourintermediate calculations.
%

If the firm's beta is 1.00, the risk-free rate is 5%, and theaverage return on the market is 14%, what will be the firm's costof common equity using the CAPM approach? Round your answer to twodecimal places.
%

If the firm's bonds earn a return of 12%, based on thebond-yield-plus-risk-premium approach, what will be r_s?Use the midpoint of the risk premium range discussed in Section10-5 in your calculations. Round your answer to two decimalplaces.
%

If you have equal confidence in the inputs used for the threeapproaches, what is your estimate of Callahan's cost of commonequity? Round your answer to two decimal places. Do not round yourintermediate calculations.
%

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3.7 Ratings (362 Votes)

Requirement a Cost of Common Equity using DCF Approach Dividend in year 1 D1 208 per share Current selling price per share P0 2650 per share Dividend growth Rate g 400 per year Therefore the Cost of Common Equity D1 See Answer

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The future earnings, dividends, and common stock price ofCallahan Technologies Inc. are expected to grow 4% per year.Callahan's common stock currently sells for $26.50 per share; itslast dividend was $2.00; and it will pay a $2.08 dividend at theend of the current year.Using the DCF approach, what is its cost of common equity?Round your answer to two decimal places. Do not round yourintermediate calculations.%If the firm's beta is 1.00, the risk-free rate is 5%, and theaverage return on the market is 14%, what will be the firm's costof common equity using the CAPM approach? Round your answer to twodecimal places.%If the firm's bonds earn a return of 12%, based on thebond-yield-plus-risk-premium approach, what will be rs?Use the midpoint of the risk premium range discussed in Section10-5 in your calculations. Round your answer to two decimalplaces.%If you have equal confidence in the inputs used for the threeapproaches, what is your estimate of Callahan's cost of commonequity? Round your answer to two decimal places. Do not round yourintermediate calculations.%