Question: 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, D_1, to be $2.00 and it expects dividends to grow at a constant rate g = 3.2%. The firm's current common stock price, P_0, is $20.00. The current risk-free rate, r_RF, = 4.7%; the market risk premium, RP_M, = 6%, and the firm's stock has a current beta, b, = 1.2. Assume that the Firm's cost of debt, r_D, is 8.55%. The firm uses a 4% 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:
What is your best estimate of the firm's cost of equity?