Need help with this one, I just couldn\'t get it! Can it be solved step by step

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Need help with this one, I just couldn't get it! Can it be solved step by step so I can see how it was solved? Thank you!

e. 84.35 percent Part C: Bonus not, no partial credit will be given. 1. Stock in Country Road Industries has a beta of 1.46. The market risk premium is 7.5 percent while T-bills are currently yielding 2.5 percent. Country Road's last dividend was $1.55 per share and dividends are expected to grow at an annual rate of 4.5 percent indefinitely. The stock sells for $26a share. What is the estimated cost of equity using the average return of the CAPM and the dividend discount model? Questions. Please show all the necessary steps to prove your answer. If

Explanation / Answer

First we will find cost of Equity by CAPM

Beta = 1.46

Rsk free rate = 2.5%

Market Risk PRemium = 7.5%

Cost of Equity = 2.5% + 1.46 * (7.5%)

Cost of Equity = 13.45%

Cost of Equity by dividend discount model:

Price = 26

Growth Rate = 4.5%

D0 = 1.55

D1 = 1.55 * (1 + 4.5%)

Price = D1/ (Cost of Equity - Growth Rate)

26 = 1.55 * (1 + 4.5%)/ (Cost of Equity - 4.5%)

Cost of Equity = 4.5% + 6.23%

Cost of Equity = 10.73%

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