Only Solve Part B

A ) Stock in Country Road Industries has a beta of 1.1. The market risk premium is 8%, and T bills are currently yielding 5%. The company's most recent dividend was $2 per share, and dividends are expected to grow at a 7% annual rate indefinitely. If the stock sells for $40 per share, what is your best estimate of the company's cost of equity? Make sure you use both the dividend growth model and the CAPM (take the average). Cost of equity using CAPM Cost of equity using CAPM Re=Rf+(RmRf)Beta=5%+8%1.1=0.1380 Cost of equity using DDM Re=DO(1+g)/PO+g=2(1+7%/40)+7%=0.1235=(13.80%+12.35%)/2=13.08% b) Use the cost of equity from Problem 9. You have 80% equity and 20% debt as the capital structure. If the cost of debt is 5% calculate the WACC if the tax rate is 30%