Hoaxwagen Incs stock has a market price of 24 and a beta of

Hoaxwagen, Inc.\'s stock has a market price of $24 and a beta of 1.42. The return on the U.S. Treasury bill is 2.5 percent and the market risk premium is 5.6 percent. Hoaxwagen just paid its annual dividend of $0.65 a share What is the cost of equity?

Solution

cost of equity on Hoaxwagen, Inc.\'s stock = 2.5% + 1.42*5.6%

cost of equity on Hoaxwagen, Inc.\'s stock = 10.45 %