Problem:
Laverne Industries stock has a beta of 1.38. The company just paid a dividend of $.88, and the dividends are expected to grow at 5.3 percent. The expected return of the market is 11.8 percent, and Treasury bills are yielding 5.3 percent. The most recent stock price is $84.25.
Required:
Question: Calculate the cost of equity using the dividend growth model method.
Question: Calculate the cost of equity using the SML method.
Note: Please show how to work it out.