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The management of the SummerIsAlmostHere Company needs to-(Answered)

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Question

The management of the SummerIsAlmostHere Company needs to estimate the cost of its equity financing. The latest financial data is as follows: stock price of $25.00; next expected dividend is $1.25 per share; constant expected growth rate in dividends and earnings of 5%; beta of the stock is 1.2; current market rate is 9%; risk-free rate of return is 3%.
a)

 


 

As per Constant Growth Model

 

Cost of equity = Expected Dividend/ current stock price + Growth rate

 

Cost of equity = 1.25/25 + 5%

 

Cost of equity = 10.00%

 


 

As per CAPM

 


 

Cost of equity = Risk Free...

 

Paper#9209891 | Written in 27-Jul-2016

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