Alex Murphy listed his own family business (Smart Investment Co.) in ASX and continue their expanding strategy in New Zealand in 2011. After raising the equity funds Smart Investment Co. sold 20 years, 12% bond 10 years ago at par ($200) and currently priced at $172.Recently up the Jumbo Co. Smart Investment Co. recently paid a dividend of 30 cents per equity share and the expected growth rate is identified as 6% per year into perpetuity. Ten years ago, in 2011 Smart Investment Co. issued preference shares for $90 and currently company is paying $9 per share as dividend. The current selling price of the preference share is $100. The current market price of equity share of Smart Investment Co. is $8. And recently Smart Investment Co. paid an equity dividend of 30 cents per share and the expected growth of dividend is 6%. Alex is keen to evaluate the capital structure of New Zealand operations to identify the hurdle rate of his own business and to use the WACC in a strategic way to evaluate more other investment opportunities in his company. After the recent meeting had with Alex, the financial manager extracted the below financial data: Risk-free rate (based on 1-year Treasury note rate) 5.5% Risk premium (historical) 3.38% Market Beta 1.5

Calculate Cost of equity (using two methods indicated in part (a) above), cost of debt and cost of preference shares. (Ignore the taxes)

(7 Marks)