Firm cost of equity using the capm approach

Question

Problem:

Suppose you must estimate the cost of equity for a firm, and you have the following data: rRF = 5.0%; rM rRF = 4%; b = 0.9; D1 = $2.00; P0 = $50.00; g = 5%; and rd = the firm's bond yield = 5.8%.

Required:

Question: What is this firm's cost of equity using the CAPM approach?

• 8.6%
• 7.5%
• 8.8%
• 8.2%
• 9.0%

Note: Provide thorough explanation of every question given in the problem.