Problem:
Floyd Industries stock has a beta of 1.30. The company just paid a dividend of $.30, and the dividends are expected to grow at 4 percent per year. The expected return on the market is 13 percent, and Treasury bills are yielding 4.8 percent. The most recent stock price for Floyd is $65.
Required:
Question 1: Calculate the cost of equity using the DDM method.
Question 2: Calculate the cost of equity using the SML method.
Note: Please show the work not just the answer.