The Return on the Market Is 11

question 16

Multiple Choice

The return on the market is 11%.A firm's beta is 1.4,and the risk-free rate is 6%.The stock is currently selling for $18 and the next dividend is expected to be $1.75.The firm's growth rate is 5%.The pre-tax cost of debt is 10% and the equity risk premium is 5%.Estimate the cost of equity by taking an average of the three methods to determine the cost of equity.

• A) 15.0%
• B) 14.2%
• C) 13.0%
• D) 14.7%
• E) 11.5%