Your Corp, Inc.’s data is as follows:
Beta; 1.30
Recent dividend; $.90
Expected dividend growth; 7%
Expected return of the market; 14%
Treasury Bills are yielding; 4%
Most recent stock price; $65
Problem 7-4(continued)
A] Using the DCF method, calculate the cost of equity.
B] Using the SML method, calculate the cost of equity.
C] The answers in [A] and [B] are very different. Why?