The earnings dividends, and stock price of Shelby Inc. are expected to grow Using the discounted cash flow approach, what is the cost of equity? The earnings dividends, and stock price of Shelby Inc. are expected to grow a. Using the discounted cash flow approach, what is the cost of equity? If the firm’s beta is 1.6, the risk-free rate is 9%, and the expected return on the market is 13%, then what would be the firms cost of equity based on the (CAPM) approach. K3= p/d + g =$2.14/$23 = 7% =9.3% + 7% =16.3% b. If the firm’s beta is 1.6, the risk-free rate is 9%, and the expected return on the market is 13%, then what would be the firms cost of equity based on the (CAPM) approach? Expected return = RF+β×Rp RF is risk free return Rp is risk premium = 9%+1.6× (13%-9%) = 15.4% c. If the firms bonds earn a return of 12%, what will it be using the bond-yield-plus-risk-premium approach? (Hint: Use the midpoint of the risk premium rate.) K=bond rate + risk premium =12% + 4% = 16% This makes the Risk Premium 16% D. On the basis of the results of parts a through c, what would you estimate Shelby’s cost of equity to be?