The company has a beta of 0.8, the risk-free rate of return is currently 7%, and the market return is 9%. The company plans to pay a dividend of $2.60 in the coming year and anticipates that its future dividends will increase at an annual consistent of 5% for the forseeable future.

Required:

a) Calculate the required return on the companys ordinary shares using the Capital Asset Pricing

Model (CAPM).

b) Estimate the value of the companys ordinary shares using the Constant-Growth Dividend Model

(Use the required rate of return calculated in part (a) ).

2. Weighted Average Cost of Capital (WACC) (5 of 20 marks)

The company has a capital structure based on current market values as follow:

Type

Weighting

Returns required by investors

Debt 50% Preference Shares 10% Ordinary Shares 40%

8%

10%

Calculated in part 1(a)

Required:

Calculate the companys after-tax WACC, assuming the firms marginal tax rate is 35%.

pls answer for 2 question with full calculation

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