Pan American? Airlines' shares are currently trading at ?$58.75 each. The market yield on Pan? Am's debt is 4?% and the? firm's beta is 0.8. The? T-Bill rate is 3.75?% and the expected return on the market is 7.75?%. The? company's target capital structure is 35?% debt and 65?% equity. Pan American Airlines pays a combined federal and state tax rate of 35?%. What is the estimated cost of common? equity, employing the constant growth dividend discount? model? Assume that Pan Am pays annual dividends and that the last dividend of ?$2.21 per share was paid yesterday. Pan Am started paying dividends 3years ago. The first dividend was ?$1.59per share.
Employing the constant growth dividend discount? model, the estimated cost of common equity for Pan Am is nothing ?%.