Laverne Industries stock has a beta of 1.35. The company just paid a dividend of $.85, and the dividends are expected to grow at 5 percent. The expected return of the market is 11.5 percent, and Treasury bills are yielding 5 percent. The most recent stock price is $83.50.
(a) Calculate the cost of equity using the dividend growth model method.
(b) Calculate the cost of equity using the SML method.