SpaceMouse plc has just paid a dividend of 4 per share in 2017. The companys dividends are expected to increase at a constant growth rate of 5% per year forever. The company has 5 million shares outstanding which are currently trading at 42 per share; it also has 90 million long-term debt outstanding and the before-tax required return on this debt is 9%. Suppose that SpaceMouses tax rate is 40%.

1. Calculate SpaceMouses after tax weighted average cost of capital.

2. Discuss the advantages and disadvantages of the dividend growth model approach to estimate cost of equity.