Can someone help out with these three? The yield on a three-month T-bill is 3.2%

Question

Can someone help out with these three? The yield on a three-month T-bill is 3.2%, and the yield on a 10-year T-bond is 4.6%. The market risk premium is 5.7%. Allen Co. has a beta of 0.87. Using the Capital Asset Priang Model (CAPM) approach, Allen's cost of equity is The cost of equity using the CAPM approach Kuhn Co. is closely held and, consequently, cannot generate reliable inputs for the CAPM approach. Kuhn's bonds yield 10.2%, and the firm's analysts estimate that the firm's risk premium on its stock over its bonds is 3.5%. Using the over-own-bond-yield judgmental risk premium approach, find the firm's cost of equity: 16.4% 15.1% 13.7% o The cost of equity using the Discounted Cashflow (or Dividend Growth) Approach Kirby Co.'s stock is currently selling for $32.45, and the firm expects its dividend to be $2.35 in one year. Analysts project the firm's growth rate to be constant at 7.2%, using the discounted cash flow (DCF) approach, what is Kirby's cost of equity? 19.4% 15.1% 13.7% 14.4%

Explanation / Answer

Answer-1:

Calculation of Cost of Equity:

Cost of Equity = Risk free rate + (Beta * Market Risk Premium)

= 4.6 + (0.87 * 5.7)

= 4.6 + 4.96

= 9.56 %

Answer-2:

Calculation of Cost of Equity:

Cost of Equity = Risk Free rate + Marker risk premium adjusted

= 10.2 + 3.5 = 13.70%

Answer-3:

Calculation of Cost of Equity:

Cost of Equity = ( Expected Dividend / Market Price ) + Growth rate

= (2.35 / 32.45 ) + 7.2%

= 0.0724 + 7.2%

= 7.24% + 7.2%

= 14.44%

or Say 14.4%

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