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Assess the firms cost of equity

Problem: A company's EPS are $2.00 and has a 60% pay-out ratio. Dividends are expected to grow at 7% per year. Its stock beta is 1.2, the risk free rate is 6% and the average return on equity in the market is 12%.

1) What is the firm's cost of equity?

2) What is the most you should be willing to pay for a share of its stock?

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Finance Basics: Assess the firms cost of equity

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