Floyd Industries stock has a beta of 1.30. The company just paid a dividend of $

Question

Floyd Industries stock has a beta of 1.30. The company just paid a dividend of $.30, and the dividends are expected to grow at 4 percent per year. The expected return on the market is 13 percent, and Treasury bills are yielding 6.0 percent. The most recent stock price for Floyd is $77.

Calculate the cost of equity using the DDM method. (Round your answer to 2 decimal places. (e.g., 32.16))

Calculate the cost of equity using the SML method. (Round your answer to 2 decimal places. (e.g., 32.16))

Floyd Industries stock has a beta of 1.30. The company just paid a dividend of $.30, and the dividends are expected to grow at 4 percent per year. The expected return on the market is 13 percent, and Treasury bills are yielding 6.0 percent. The most recent stock price for Floyd is $77.

Explanation / Answer

a)

Cost of equity, re = D1÷Price+Growth rate

= $0.30×(1+4%)÷$77+4%

= 4.41%

b)

Cost of equity = Rf+×Rp

Rf is risk free return

Rp is risk premium

= 6%+1.3×(13%-6%)

= 15.10%

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.