Problem:
Stock in ABC Enterprises has a beta of 1.06. The market risk premium is 6.8 percent, and T-bills are currently yielding 3.2 percent. ABC's most recent dividend was $1.56 per share, and dividends are expected to grow at a 4 percent annual rate indefinitely.
Required:
Question: If the stock sells for $43 a share, what is your best estimate of ABC's cost of equity?
Note: Show all workings.