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Equity in the Abby Group has a beta of 1.27; The market risk premium is 7%, and the risk-free rate is 4%. Abby's last dividend was 50 cents per share, and the dividend is expected to grow at 8% indefinitely. The shares currently sell fo r$11 per share. Calculate Abby's cost of equity capital using two different methods. Comment on the answers obtained using the two methods to suggest which is the preferred answer.

RE = 0.5(1.08)/11.00 + 0.08 = 0.129

or SML formula:

RE = 0.04 + (0.07)1.27 = 0.129