Explore BrainMass

Explore BrainMass

    Cost of equity

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Cost of Equity. Bunkhouse Electronics is a recently incorporated firm that makes electronic entertainment systems. Its earnings and dividends have been growing at a rate of 30 percent, and the current dividend yield is 2 percent. It beta is 1.2, the market risk premium is 8 percent, and the risk-free rate is 4 percent.
    a. Calculate two estimates of the firm's cost of equity?
    b. Which estimate seems more reasonable to you? Why?

    © BrainMass Inc. brainmass.com March 4, 2021, 9:05 pm ad1c9bdddf
    https://brainmass.com/business/flow-to-equity/216520

    Solution Preview

    a. Calculate two estimates of the firm's cost of equity.

    The two estimates can be made using
    1. The dividend discount model which gives the
    Cost of equity = D1/MP + g
    where D1/MP is the dividend yield and g is the ...

    Solution Summary

    The solution explains how to calculate the cost of equity using two methods

    $2.49

    ADVERTISEMENT