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Question 3 John plc has 10 million shares outstanding and the current share price is 4. These ordinary shares have a beta of 1.5. The risk-free rate on government bonds is 5% per year and the expected rate of retum on the market portfolio is 15% per year. 1) Use the CAPM model to calculate the firm's cost of equity (5 marks) ii) Assuming the corporation tax rate is 30%, what is the weighted average of cost of capital (WACC) if the market value of its debt is 10m with costs of 10% per year before allowing for tax shield benefits? (10 marks) mi) What is the drawback of using CAPM to estimate cost of capital