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15 July, 22:58

Stock in country Road Industries has a beta of 1.46. The market risk premium is 7.5 percent while T-bills are currently yielding 2.5 percent. Country Road's last dividend was $1.55 per share and dividends are expected to grow at an annual rate of 4.5 percent indefinitely. The stock sells for $26 a share. What is the estimated cost of equity?

a. 11.96 percent

b. 13.45 percent

c. 10.73 percent

d. 12.09 percent

e. 10.46 percent

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  1. 15 July, 23:19
    0
    b. 13.45 percent

    Explanation:

    We can use the CAPM method to find the cost of equity, according to CAPM

    cost of equity = Risk free Rate + Beta (market risk premium)

    cost of equity = 2.5+1.46 (7.5)

    cost of equity=13.45
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