--%>
Assignment Help - homework help

Calculating the Cost of Equity

You are an analyst in the financial division of Flipper Industries (FI) which has a beta of 1.80 (you are risk-philic, so you enjoy the thrill of working somewhere so risky). The company just paid a dividend of $1 and dividends are expected to grow at 5% per year. The expected return on the market is 11% and Treasury Bills are yielding 3%. The most recent stock price for FI is $60. Your boss asks you to calculate the cost of equity.

a. Calculate the cost of equity using the Dividend Discount Model

b. Calculate the cost of equity using the SML

c. How do you explain the difference between the two calculations to your boss? You can be brief – he’s in a hurry.

   Related Questions in Corporate Finance

  • Q : Who introduced put–call parity Who

    Who introduced put–call parity?

    		•
  • Q : Zero Coupon Bonds-Corporate Bonds

    Describe the term Zero Coupon Bonds in Corporate Bonds?

    		•
  • Q : Who published a book regarding

    Who published a book regarding option formula and risk neutrality?

    		•
  • Q : Data Case Please Assist with the

    Please Assist with the attached Data Case Assignment

    		•
  • Q : How WACC should be computed to begin a

    I cannot seem to begin a valuation. In order to compute E + D = VA (FCF; WACC) I require the WACC and to compute the WACC I need D and E. Where must I start?

    		•
  • Q : Difference between capitalization and

    Is the difference for the value creation in a company among the market value of the shares (capitalization) and their book value a good measure since its foundation?

    		•
  • Q : Who described option pricing with

    Who described option pricing with deterministic volatility?

    		•
  • Q : FIN3000 Corporate Finance Task

    Task Description Length: 1000-2000 words (up to 500 words above 2000 permitted) Description: • Complete this assignment in groups of 4-5 students. • Maintain a portfolio of financial issues taken from 8 news sources. • Analyse the articles with reference to theory covered in class and h

    		•
  • Q : How you can predict future evolution of

    Could we suppose that, as we cannot predict the future evolution of the value of shares, a good estimation would be to consider this constant during the next five years?

    		•
  • Q : Finc . A&B Enterprises is trying to

    . A&B Enterprises is trying to select the best investment from among four alternatives. Each alternative involves an initial outlay of $100,000. Their cash flows follow: Year A B C D 1 $10,000 $50,000 $25,000 $ 0 2 20,000 40,000 25,000 0 3 30,000 30,000 25,000 45,0

    		•