Solve the below problem:
Q: Bunkhouse Electronics is a recently incorporated firm that makes electronic entertainment systems. Its earnings and dividends have been growing at a rate of 30%, and the current dividend yield is 3%. Its beta is 1.0, the market risk premium is 10%, and the risk-free rate is 5%.
a-1. Calculate the firms cost of equity by using the Dividend Discount Model. Cost of equity %
a-2. Calculate the firms cost of equity by using the CAPM. Cost of equity %
b. Which estimate seems more reasonable to you? Dividend Discount Model or CAPM