Question

Southern home cookin' just paid its annual dividend of $0.65 a share. the stock has a market price of $13 and a beta of 1.12. the return on the u.s. treasury bill is 2.5 percent and the market risk premium is 6.8 percent. what is the cost of equity?

Answer 1

Cost of Equity as per CAPM = rf +beta*(rm-rf)

rf = risk free rate = 2.5%

beta =1.12

rm-rf = market risk premium = 6.8%

Cost of equity = 2.5+ 1.12*6.8 = 10.116% = 10.12%