Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D1, to be $1.70 and it expects dividends to grow at a constant rate g = 6%. The firm's current common stock price, P0, is $22.00. The current risk-free rate, rRF, = 4%; the market risk premium, RPM, = 5.3%, and the firm's stock has a current beta, b, = 1. Assume that the firm's cost of debt, rd, is 8.21%. The firm uses a 3.3% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Round your answers to 2 decimal places.
CAPM cost of equity: %
Bond yield plus risk premium: %
DCF cost of equity: %
Quantitative Problem: Barton Industries can issue perpetual preferred stock at a price of $47 per share. The stock would pay a constant annual dividend of $3.20 per share. If the firm's marginal tax rate is 40%, what is the company's cost of preferred stock? Round your answer to 2 decimal places. %