The earnings, dividends, and common stock price of Carlos Enterprises are expected to grow a 6 percent per year in the future. Carlos’ common stock sells for $27.50 per share, its last dividend was $3.00 and it will pay a dividend of $3.18 at the end of the current year.
Using the DCF approach, what is its cost of common equity?
If the firm’s beta is 1.2 the risk-free rate is 7 percent, and the average return on the market is 12 percent, what will be the firm’s cost of common equity using the CAPM approach?