Which estimate seems more reasonable


  • Bunkhouse Electronics is a recently incorporated firm that makes electronic entertainment systems. Its earnings and dividends have been growing at a rate of 40%, and the current dividend yield is 2%. Its beta is .9, the market risk premium is 11%, and the risk-free rate is 4%.
  • Calculate the firm’s cost of equity by using the Dividend Discount Model.Cost of equity
  • Calculate the firm’s cost of equity by using the CAPM. (Do not round intermediate calculations. Round your answer to 1 decimal place.) Cost of equity
  • Which estimate seems more reasonable to you?

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Finance Basics: Which estimate seems more reasonable
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