Cost of Equity.Bunkhouse Electronics is a recently incorporated firm that makes electronic entertainment systems. Its earnings and dividends have been growing at a rate of 30 percent,
and the current dividend yield is 2 percent. Its beta is 1.2, the market risk premium is 8 per- cent, and the risk-free rate is 4 percent.
a. Calculate two estimates of the firm’s cost of equity.
b. Which estimate seems more reasonable to you? Why?
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