Problem:
Stock in CDB Industries has a beta of .91. The market risk premium is 7.1 percent, and T-bills are currently yielding 4.1 percent. CDB's most recent dividend was $2.00 per share, and dividends are expected to grow at a 5.1 percent annual rate indefinitely.
Required:
Question: If the stock sells for $42 per share, what is your best estimate of CDB's cost of equity?
Note: Provide support for your rationale.