IBM expects to pay a dividend of $4 next year and expects these dividends to grow at 7% a year. The price of IBM is $90 per share. Your estimate of the market risk premium is 6%. The risk-free rate of return is 5% and IBM has a beta of 1.2.What is IBM's cost of equity capital using the two methodologies, discounted growth model (DGM) and capital asset pricing model (CAPM) respectively?单项选择题

A

11.44%, 12.2%

B

9.65%, 10.2%

C

10.89%, 11.2%

D

10.23%, 10.8%

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Serendipity Inc. is re-evaluating its debt level. Its current capital structure consists of 80% debt and 20% common equity, its beta is 1.60, and its tax rate is 25%. However, the CFO thinks the company has too much debt, and he is considering moving to a capital structure with 40% debt and 60% equity. The risk-free rate is 5.0% and the market risk premium is 6.0%. By how much would the capital structure shift change the firm's cost of equity?

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Question5 Assume a firm utilizes the security market line (CAPM) approach to determine its cost of equity. Grand Opal Ltd currently pays an annual dividend of $2.10 per share and has a beta of 1.30. All else constant, which of the following actions will decrease the firm’s cost of equity? Investors raise their expectations about the market rate of return. The firm increases its annual dividend to $2.40 per share. The firm restructures its operations so that its beta falls to 1.05. The market risk premium increases. ResetMaximum marks: 1 Flag question undefined

Use CAPM to find the cost of equity capital, if US Treasury rate is 2.6%, Stock Market risk is 11.6% and stock's Beta is 1.3.

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