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 7% per year.Callahan's common stock currently sells for $26.25 per share; itslast dividend was $2.00; and it will pay a $2.14 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 0.80, the risk-free rate is 6%, and theaverage return on the market is 12%, 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 8%, based on thebond-yield-plus-risk-premium approach, what will be rs? Use themidpoint of the risk premium range discussed in Section 10-5 inyour calculations. Round your answer to two decimal places.
%

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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4.1 Ratings (501 Votes)

a Growth rate in dividend 214 200 1 107 1 7 Growth rate in dividend is 7 Cost of equity using DCF 214 2625 7 815 7 1515 See Answer

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The future earnings, dividends, and common stock price ofCallahan Technologies Inc. are expected to grow 7% per year.Callahan's common stock currently sells for $26.25 per share; itslast dividend was $2.00; and it will pay a $2.14 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 0.80, the risk-free rate is 6%, and theaverage return on the market is 12%, 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 8%, based on thebond-yield-plus-risk-premium approach, what will be rs? Use themidpoint of the risk premium range discussed in Section 10-5 inyour calculations. Round your answer to two decimal places.%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.%