Question:

Riverroad Chicken Company , a company selling roasted chicken and other accompaniments in outlets throughout the country , went public last year , 2011.In 2010 , it had revenues of Sh.40 million,on which reported earnings before interest and taxes of Sh.12 million.At that time, prior to going public, the firm had no debt outstanding, and expected revenues are to grow at 35% a year from 2011 to 2015, 15% a year from 2015 to 2017 and 5% a year after that.The pre-tax operating margins (EBIT/Revenues) were expected to remain stable.

Capital expenditure which exceeded depreciation by Sh.5 million in the year prior to going public were expected to grow 20% a year from 2011 to 2015, as is depreciation .After 2016, capital expenditure are expected to offsetdepreciation.Working Capital are negligible.

The average beta of publicly traded fast food chains with which Riverroad Chicken will be competing is 1.15 and their average debt-equity ratio is 25%.The company in question plans to move to the industry average debt ration after that (2015).The pretax cost of debt is expected to be 8% .The treasury bond rate is 7% .Assume a 40% tax regime, and an average stock in the market earn a return of 12.50%

Required>

Estimate the cost of equity for the company,Riverroad Chicken Ltd and the Value of its equity.