Question $34(5$ points$)$

Your assignment is to determine the cost of capital for RC Ontario. The company has

a tax rate of $40\%$ and $100,000$ common shares. The estimated beta for the common

stock is $2.$ The expected return of the market is $10\%,$ and the risk$-$free rate is also

$4\%.$ RC Ontario recently issued a dividend of $$2$ per share, with a projected $15\%$

growth in dividends until Year $4,$ followed by a consistent $5\%$ growth thereafter. You

will use the CAPM approach to calculate the cost of equity.

Additionally, the company has two outstanding debt issues. The first issue consists of

$1,000$ semi$-$annual coupon bonds, each with a face value of $$1,000,$ an annual

coupon rate of $9\%,$ and currently trading at a YTM of $9\%.$ The second issue

comprises $1,000$ zero coupon bonds, each with a face value of $$1,000,$ trading at

$70\%$ of their face value, and maturing in $15$ years.

Your task is to calculate the weighted average cost of capital for RC Ontario based

on the provided information $($ Please show your work for full credit$)(5$marks$)$