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Stock in CDB Industries has a beta of 1.13. The market risk premium is 7.3 percent, and T-bills are currently yielding 4.3 percent. CDB’s most recent dividend was $3.70 per share, and dividends are expected to grow at an annual rate of 5.3 percent indefinitely. If the stock sells for $59 per share, what is your best estimate of the company's cost of equity?

Question

Stock in CDB Industries has a beta of 1.13. The market risk premium is 7.3 percent, and T-bills are currently yielding 4.3 percent. CDB’s most recent dividend was $3.70 per share, and dividends are expected to grow at an annual rate of 5.3 percent indefinitely.
 
If the stock sells for $59 per share, what is your best estimate of the company's cost of equity?

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Step 1

Expected dividend is computed and then dividend yield is computed.

Cost of eq...

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