Styles Paragraph 15 16 17 18 19 110 111 12 13 14 15 16 Cost of Capital Editing Voice During the last few years, Harry Davis PVT Ltd (HDPL) has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program that has been proposed by the marketing department. Assume that you are the company financial analyst Your task is to estimate HDPL's cost of capital Finance manager of HDPL has provided you with the following data, which she believes may be relevant to your task A) Dividend just paid =$2.35 B) Expected dividend growth rate=5% c) Current share price: $44 D) Beta of company ordinary share 0.87 E) Risk free rate of return 3.6% F] Expected return on the market #11% G) Capital structure is 75% equity and 25% Debt H) Cost of debt = 5.8% 1) Company tax rate - 30% Required 1. Calculate cost of equity using the dividend growth model 15 marks) 2. Calculate cost of equity using the Capital asset pricing model (CAPM) {marks) 3 Calculate WACC using cost of equity in 1 above (DGM) 15 marks) 4 Calculate WACC using cost of equity in 2 above (CAPM) 15 marks)