Questions

You recently graduated from a company sponsored Master degree in Finance programme and the Chief Financial Officer of MTR Corporation Limited has asked you to take the findings of Stacey and Jim and write a report to him on how to estimate the appropriate cost of capital for MTRC long term investment decisions. The report should comprise but not limited to the following:

1. Compute the long-term cost of debt and analyse the financing side effects of gearing.

(10 marks)

2. Compute the cost of equity using the perpetuity (Gordon constant) growth model and the capital asset pricing model. (28 marks)
3. In what circumstances do deferred tax classified as equity? (2 marks)