Problem:
Berta Industries stock has a beta of 1.25. The company just paid a dividend of $0.40, and the dividends are expected to grow at 5 percent. The expected return on the market is 12 percent, and Treasury bills are yielding 5.8 percent. The most recent stock price for Berta is $75.
Required:
Question 1: Calculate the cost of equity using the DCF method.
Question 2: Calculate the cost of equity using the SML method.
Note: Please show how to work it out.