1. Biogenetics Corporation has a target capital structure of 60 % common stock, and the rest on bonds. The risk free rate is 5%, and the return on the stock market is 15%. This year, Biogenetics bonds had an YTM of 5.5%, and the company is on the 35 percent tax bracket. On last trading day, Biogenetics paid dividends of $3/share , which will grow at 3% every year. Last trading day the stock was selling at $30. The company beta is 1.5.

a. Compute the return on the equity (Re) using the Dividend Growth Model (DGM), and the Security Market line (SML). Show Calculation (10 points)