Stock in Country Road Industries has a beta of 0.63. The market risk premium is

Question

Stock in Country Road Industries has a beta of 0.63. The market risk premium is 8 percent, and T-bills are currently yielding 5 percent. The company's most recent dividend was $1.7 per share, and dividends are expected to grow at a 5 percent annual rate indefinitely. If the stock sells for $39 per share, what is your best estimate of the company's cost of equity? (Do not round your intermediate calculations.)

6.89%

9.81%

9.58%

10.04%

8.43%

Stock in Country Road Industries has a beta of 0.63. The market risk premium is 8 percent, and T-bills are currently yielding 5 percent. The company's most recent dividend was $1.7 per share, and dividends are expected to grow at a 5 percent annual rate indefinitely. If the stock sells for $39 per share, what is your best estimate of the company's cost of equity? (Do not round your intermediate calculations.)

Explanation / Answer

Answer is 10.04%

Beta = 0.63
Market Risk Premium = 8%
Risk-free Rate =5%

Cost of Equity = Risk-free Rate + Beta * Market Risk Premium
Cost of Equity = 5% + 0.63 * 8%
Cost of Equity = 10.04%

So, best estimate of the company’s cost of equity is 10.04%

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