Stock in Country Road Industries has a beta of 0.8940. The market risk premium is 8.7 percent, and T-bills are currently yielding 4.8 percent. The company's most recent dividend was $1.8 per share, and dividends are expected to grow at a 5 percent annual rate indefinitely. If the stock sells for $32.0 per share, your best estimate of Country Road's cost of equity is
645634
To calculate Country Road's cost of equity, we can use the formula for the capital asset pricing model (CAPM):
Cost of Equity = Risk-Free Rate + Beta * Market Risk Premium
First, let's calculate the risk-free rate. The question tells us that T-bills are currently yielding 4.8 percent, so we'll use that as the risk-free rate.
Risk-Free Rate = 4.8%
Next, we'll calculate the market risk premium. The question states that it is 8.7 percent.
Market Risk Premium = 8.7%
Now, let's calculate the cost of equity.
Cost of Equity = 4.8% + 0.8940 * 8.7%
Cost of Equity = 4.8% + 7.7638%
Cost of Equity = 12.5638%
So, your best estimate of Country Road's cost of equity is approximately 12.5638%.