Pierce Industries stock has a beta of 1.40. The company just paid a dividend of $.90, and the dividends are expected to grow at 5 percent. The expected return on the market is 11.5 percent, and Treasury bills are yielding 5 percent. The most recent stock price is $84.75.
a. Calculate the cost of equity using the dividend growth model method. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Cost of equity %
b. Calculate the cost of equity using the SML method.