Problem:
Stock in CDB Industries has a beta of 0.90. The market risk premium is 7 percent, and T-bills are currently yielding 4 percent. CDB's most recent dividend was $1.90 per share, and dividends are expected to grow at a 5 percent annual rate indefinitely.
Required:
Question: If the stock sells for $41 per share, what is your best estimate of CDB's cost of equity?
Note: Provide support for your rationale.