Assignment:
Calculating the Cost of Equity. Fiji Light Industries shares have a beta of 1.2. The company has just paid a dividend of $0.80, and the dividends are expected to grow at 6%. The expected return of the market is 12.5% and the risk-free rate is 5%. The most recent share price for Fiji Light's ordinary shares is $72.
a. Calculate the cost of equity using the dividend growth model method.
b. Calculate the cost of equity using the SML method.
c. Why do you think your estimates in a and b are so different?