Problem:
Stock in CDB Industries has a beta of .94. The market risk premium is 7.4 percent, and T-bills are currently yielding 4.4 percent. CDB's most recent dividend was $2.30 per share, and dividends are expected to grow at a 5.4 percent annual rate indefinitely. The stock sells for $45 per share.
Required:
Question 1: Using the CAPM, what is your estimate of CDB's cost of equity?
Question 2: Using the dividend discount model, what is your estimate of CDB's cost of equity?
Question 3: What is your best estimate of CDB's cost of equity?
Note: Please answer in proper manner and show all computations