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Calculating "Rs" using the bond yield-plus-risk premium approach and estimating Carpetto's cost of equity.

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Yield Risk Premium Approach problem (also attached):

The earnings, dividends and stock price of Carpetto Technologies Inc are expected to grow @ 7% per year in the future. Carpetto's common stock sells for $23 per share, its last dividend was $2.00 and the company will pay a dividend of $2.14 at the end of the current year.

1. If the firm's bonds earn a return of 12 percent what will Rs be using the bond yield-plus-risk premium approach?
2. What would you estimate Carpetto's cost of equity to be?

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The earnings, dividends and stock price of Carpetto Technologies Inc are expected to grow @ 7% per year in the future. Carpetto's common stock sells for $23 per share, its ...

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