Problem:
Stock in Dragula Industries has a beta of 1.2. The market risk premium is 6 percent, and T-bills are currently yielding 5.30 percent. The company's most recent dividend was $1.70 per share, and dividends are expected to grow at a 5.0 percent annual rate indefinitely.
Required:
If the stock sells for $35 per share, what is your best estimate of the company's cost of equity?
Note: Explain all steps comprehensively.