Question

Eaton Electronic Company's treasurer uses both the capital asset pricing model and the dividend valuation model to compute the cost of common equity (also referred to as the required rate of retum for common equity). Assume Rt 6% = % Am = $ .90 = $ 19 Po 5% a. Compute Ki (required rate of retum on common equity based on the capital asset pricing model). (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) K b. Compute base n the dividend valuation mode calcul Input your answ mon equ nc as a percen es. Ke

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

File Home Insert Page Layout Formulas Data Review View Add-Ins - Cut AutoSum A A Wrap Text Calibri 11 General Fill aCopy BI U A Merge & Center Conditional Format Insert Delete Format Paste S % Cell Sort & Find & 2 Clear Format Painter er Select Formatting ble Styles Cells Clipboard Font Alignment Number Shules Editing GK152 GK GN GR GT GUT G. GL GM GO GP GO GS 136 137 COST OF EQUITY USING CAPM APPROACH 138 Rf +beta(Km-Rf) Km-Rf RISK PREMIUM 9% -6% = 3% 139 Ki= 6%1.8(3%) Ki = 140 Ki 11.40% 141 142 143 COST OF EQUITY USING DIVIDEND VALUATION MODEL 144 D1 0.9 145 5% PO 19 146 147 ke DO(1+g)/PO g 0.9/19 0.05 148 149 ke = ke 9.74% 150 151 152 153 154 HKE CAPM UTILITY, SHARPE, beta bond covexity DGM RESI ex di YIELD bond portfolo cap stru WACC 130 % O 14 port future INDEX INTL CAP BUD LEASING PV, FV, ANNUITY DIR right dlean Re erences: GZ39 04:53 ENG 6-08-2019