(Cost of common equity) The common stock for the Hetterbrand Corportation sells for $59.17, and the last dividend paid was $2.24. Five years ago the firm paid $1.54 per share, and dividends are expected to grow at the same annual rate in the figure as they did over the past five years.
a. What is the estimated cost of common equity to the firm using the dividend growth model? (Round to 2 decimal places.)
b. Hetterbrand's CFO has asked his financial anaylst to estimate the firm's cost of common equity using the CAPM as a way of validating the earlier calculations. The risk-free rate of interest is currently 4.1 percent, the market rist premium is estimated to be 4.2 percent, and Hetterbrands' beta is 0.78. What is your estimate of the firm's cost of common equity using this method? (Round to 2 decimal places.)
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