a
Adequate information:
Beta of the stock
Dividend per share
Growth rate of stock
Market return of the stock
T-bill rate
Beta of the stock
To compute: Cost of equity using DDM method for the compant M.
Introduction: The Cost of equity refers to the compensation made to the investors for bearing the risk of ownership. The dividend discount model (DDM) is a method used for determining the price of a stock and its based on future dividend payments.
b
Adequate information:
Beta of the stock
Dividend per share
Growth rate of stock
Market return of the stock
T-bill rate
Beta of the stock
To compute: Cost of equity using SML method for the compant M.
Introduction: Cost of equity refers to the compensation made to the investors for bearing the risk of ownership. The capital asset pricing model (CAPM) is a method used for determining the price of a stock based on the relationship between expected return and risk.
c
To determine: Difference in estimates sub-part (a) and sub-part (b)
Introduction: The dividend discount model (DDM) is a method used for determining the price of a stock based on future dividend payments. The
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Corporate Finance
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- Ginger Industries stock has a beta of 1.33. The company just paid a dividend of $.83, and the dividends are expected to grow at 5.3 percent. The expected return on the market is 11.8 percent, and Treasury bills are yielding 5.3 percent. The most recent stock price is $83.00. Calculate the cost of equity using the dividend growth model method. Calculate the cost of equity using the SML method.arrow_forwardYou researched Turnkey Investment's financial data and gathered the following information: Current price per share of stock $72 Expected market risk premium 9.9% financial reports clipart Dividend per share paid just recently = $ 5.32 Risk free interest rate 6% Expected annual growth of dividend per share 5% Stock Beta 1.87 Calculate the company's cost of equity using the Dividend Growth Model approach. Your answer should be in percent, not in decimals: e.g., 12.34 rather than 0.1234arrow_forwardA stock is selling today for $75 per share. At the end of the year, it pays a dividend of $6 per share and sells for $87. A. What is the total rate of return on the stock? B. What are the dividend yield and percentage capital gain? C. Now suppose the year-end stock price after the dividend is paid is $72. What are the dividend yield and percentage capital gain in this case?arrow_forward
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- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage LearningManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub