Question: The Blue Dog Company has common stock outstanding that has a current price of $20 per share, and its next projected dividend is $.50. Blue Dog's earnings and dividends are expected to grow at 3% per year, in perpetuity. The current risk-free rate of return is 2.5%, and the market risk premium is 5%. Blue Dog's operations are 20% more risky than the market as a whole.
What is the cost of equity for Blue Dog using the dividend valuation model?
What is the cost of equity for Blue Dog using the capital asset pricing model?