Problem: The JBH Corp expects to pay a dividend next year of $2.22. It expects its cash dividends to grow 5% per year forever. JBH has a debt ratio of L = 35%. Its borrowing rate is rd =9%. JBH pays corporate taxes at the rate of 30%, rf = 6%, rm = 12%, and JBH's common stock is currently selling for $20 per share. Answer the below quesitons.
1) What is the current (leveraged) required return, re, on JBH's common stock?
2) What is JBH's WACC?
3) What is JBH's unleveraged required return, r?
4) What unleveraged beta is implied by r?
5) What would you say about the estimates in parts (1) thru (4) if you learned that the market model estimated a (leveraged) beta of 2.2 for JBH's common stock?