Calculate the cost of equity using: 1. the dividend discount model and 2. the capital asset pricing model using the following information:
The dividend of Quarry, Inc. is currently $4 per share and is expected to grow at 5 percent per year forever. Its share price is $60. Its beta is 1.30. The market risk premium is 6 percent and the risk free rate is 4 percent.
After calculating the cost of equity using both methods, what is your best estimate of Quarry’s cost of equity.