BMW Plc. capital structure consists of debt and equity. The debt of the firm comprises of bond. Total nominal value of the bond is 25 million currently issued. The bond issued have a 6% annual coupon and matures after 15 years. The nominal value per bond is 100. Yield-to-maturity of the bond is 9% p.a. The current market price of the ordinary share is 6 and pays dividend semi-annually. Last month the firm paid semi-annual dividend of 15 pence per share . It is expected that dividend payment of the firm will grow 4% semi-annually. The firm have 30 million ordinary shares outstanding and the firm pays dividend annually. If the corporate tax rate is 25% and the normal tax rules apply with respect to interest and dividends. Estimate the weighted average cost of capital (WACC) for BMW Plc. (15 marks)

Explain the difference between capital market line (CML) and security market line (SML). (10 marks)