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Cost of common equity

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The earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow at 7 percent per year in the future. Carpetto's common stock sells for $23 per share, its last dividend was $2.00, and it will pay a dividend of $2.14 at the end of the current year.
If the firm's beta is 1.6, the risk-free rate is 9 percent, and the average return on the market is 13 percent, what will be the firm's cost of common equity using the CAPM approach?

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Solution Summary

Cost of common equity for Carpetto Technologies Inc. is analyzed. The firm`s beta is 1.6, the risk-free rate of 9 percent.

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The earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow at 7 percent per year in the future. ...

Solution provided by:
Manal Elkhoshkhany, MBA
Education
  • BA, Ain Shams University, Cairo Egypt
  • MBA, California State University, Sacramento
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