Question

Southern Home Cooking just paid its annual dividend of $0.74 a share. The stock has a market price of $14 per share and a beta of 1.16. The return on U.S. Treasury bills is 2.5 percent and the market risk premium is 6.8 percent. What is the firm’s cost of equity?

Answer 1

10.39%

Step-by-step explanation:

Calculation for What is the firm’s cost of equity

Using this formula

Cost of equity=Treasury bills+(Beta*Market risk premium)

Let plug in the formula

Cost of equity=0.025 + (1.16 x 0.068)

Cost of equity=0.025 + 0.0789

Cost of equity=0.1039*100

Cost of equity=10.39%

Therefore the firm’s cost of equity will be 10.39%