Bauer Intelligence (BI) is a publicly traded company with a current share price of $20 per share. BI has 30 million shares outstanding, $80 million in debt, and $12 million in cash. BI plans to pay $1.50 per share in dividends in the coming year and the dividends are expected to grow by 4% per year in the future. BIs long-term debt consists of bonds issued with a face value of $80 million with 10 years to maturity with annual coupon rate of 10% (APR). The long-term bonds are currently trading at par value. The beta of BI is 1.30, the risk-free rate is 3%, and the required return on the market portfolio is 8%. The corporate tax rate is 30%.

1. What is the BIs cost of equity based on dividend discount model (DDM)? (2 marks)

2. What is the BIs cost of equity based on capital asset pricing model (CAPM)? (2 marks)
3. What would the growth rate in DDM has to be in order to reach the same consensus as CAPM? (2 marks)
4. What is the BIs after-tax cost of debt? (2 marks)

5. Using the cost of equity obtained using CAPM in part (b) above, calculate BIs weighted average cost of capital (WACC)? (3 marks)