Verizon LTE 1:36 AM Reader View Available E connect 2.5o points Stock in CDB Ind

Question

Verizon LTE 1:36 AM Reader View Available E connect 2.5o points Stock in CDB Industries has a beta of .91. The market risk premium is 7.1 percent, and T-bills are currently yielding 4.1 percent. CDB's most recent dividend was $2.00 per share, and dividends are expected to grow at an annual rate of 5.1 percent indefinitely If the stock sells for $42 per share, what is your best estimate of the company's cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity % eferences Boo& Resources saming Objective 12-01 Check my work

Explanation / Answer

CDB What is your best estimate of CDB’s cost of equity? CAPM =   .041 + .91(.071) = .1056 or 10.56% Dividend growth model-   RE= (2.00(1.051)/42) + .051 = .101048 or 10.10% We will use the average (.1056 + .1010)/2 = .1033 or 10.33%

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