Sonic Healthcare Ltd. is a healthcare company listed in ASX. It is considering issuing ordinary shares to raise capital.

a) Sonic Healthcare Ltd. has a beta of 1.2. Long-term treasury bonds yield 3% per annum, and the long-term return of the ASX200 (i.e. the market portfolio) is 10% per annum. Using CAPM, calculate the expected rate of return of Sonic Healthcare Ltd. (3 marks)

b) If the company is expected to pay a dividend of $2/share at the end of year 4 and dividends will grow at a constant rate of 3% per annum forever, what is the implied value of a Sonic Healthcare share today?(6 marks)

c) If Sonic Healthcare Ltd. intends to sell the shares at $15/share, would you purchase them? Briefly explain why? (2 marks)

d) Debt (e.g. bonds) and equity (e.g. ordinary shares) are the two forms of finance corporations use to raise long-term capital. Would the debt holders (creditors) expect a higher or lower return than the shareholders? Briefly explain why. (4 marks)