Bunkhouse Electronics is a recently incorporated firm that makes electronic entertainment systems. Its earnings and dividends have been growing at a rate of 20%, and the current dividend yield is 2%. Its beta is 1.1, the market risk premium is 9%, and the risk-free rate is 4%.
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Calculate the firm's cost of equity by using the Dividend Discount Model.
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| a-2. |
Calculate the firm's cost of equity by using the CAPM. (Do not round intermediate calculations. Round your answer to 1 decimal place.)
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| b. |
Which estimate seems more reasonable to you?
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Dividend Discount Model |
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CAPM |
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