Question 5 10 Marks

5.1. The dividend of Ono is currently R2 per share and it is expected to grow at 5 per cent a year forever. Its share price is R50. Its beta is 1.08. The market risk premium is 5per cent and risk-free rate is 4 percent. What is your best estimate of Onos equity? (5)

5.2. When we say that a company, a division, or a project has a cost of equity capital of 10 percent and cost of debt of 8 percent, what do we mean? Why is the cost of debt lower than the cost of equity? (5)