Busi 530 Corporate Finance Home work 5

Bunkhouse Electronics is a recently incorporated firm that makes electronic entertainment systems. Its earnings and dividends have been growing at a rate of 40%, and the current dividend yield is 2%. Its beta is .9, the market risk premium is 11%, and the risk-free rate is 4%. a-1. Calculate the firm’s cost of equity by using the Dividend Discount Model. Cost of equity a-2. Calculate the firm’s cost of equity by using the CAPM. (Do not round intermediate calculations. Round your answer to 1 decimal place.) Cost of equity b. Which estimate seems more reasonable to you?