N Question 3 Alex is the CFO of Seven Star (SS), a hypothetical company, who is interested to compute the weighted average cost of capital (WACC) of the company. Following information is readily available to him: Risk-free rate = 4.0% Beta coefficient of SS = 1.3, Expected market return = 12% Current dividend= $1.15 Estimate of dividend growth= 8.93% SS Financial information Market Values($) Book Values($) Market Value of Debt (D) Market Value of Equity (E) 910,000,000 9,000,000,000 900000000 2239000000 Total Capital (D+E) 9,910,000,000 3139000000 Cost of debt (rd) (WACD) 5.59% 5.59% Tax rate (t) 20% 20% Required: 1. Calculate the WACC for Seven Stars using dividend growth model (DGM) to compute cost of equity beyond M&M world. 2. Calculate the WACC for Seven Stars using CAPM to compute cost of equity beyond M&M world. a) Calculate the WACC with Miller and Modigliani proposition that incorporates corporate tax, using both DGM and CAPM. b) Does capital structure affect shareholder wealth? Give your opinion. Total: 30 marks (8+8+8+6)