Problem:
Stock in Country Road Industries has a beta of 1.07. The market risk premium is 8.5 percent, and T-bills are currently yielding 3.5 percent. The company's most recent dividend was $1.7 per share, and dividends are expected to grow at a 7.5 percent annual rate indefinitely.
Required:
If the stock sells for $40 per share, what is your best estimate of the company's cost of equity? (Do not round your intermediate calculations.)
- 12.6%
- 8.85%
- 10.66%
- 12.33%
- 12.07%
Note: Please show how you came up with the solution.