Eureka Ltd. is a rapidly growing chain of retail stores. A security analysts report indicates that debt yielding 8% composes 25% of Eurekas overall capital structure. Furthermore, Eurekas dividends are expected to grow at a rate of 9% per year.

Currently, common stock in the company is priced at $30, and it should pay $1.50 per share in dividends during the coming year. The risk free rate is currently equal to 2% and the expected return on the SP 500 index is 10%. The companys estimated beta is 1.5.

a.Calculate Eurekas cost of equity using the dividend growth model

b.Calculate Eurekas cost of equity using the capital asset pricing model

c.Assuming a 40% tax rate, calculate Eurekas weighted average cost of capital.