The MTRC was originally established in 1979 as a Hong Kong government-owned entity to operate a mass transit railway system. On October 5, 2000, MTRC was listed on the Hong Kong Stock Exchange and 23 per cent of its shareholdings were sold publicly to individual and institutional investors. MTRC had a mandate to provide mass transport infrastructure to the Hong Kong public at affordable rates. Approximately 1.77 billion passengers rode its trains annually. Beginning on June 30, 2000, MTRC had a 50-year exclusive franchise to operate the Mass Transit Railway. MTRC had a total of 218 kilometres of track with 84 stations. To enable MTRC to achieve its commercial return objective of between 1 per cent to 3 per cent above its weighted average cost of capital (WACC), the Hong Kong government granted MTRC the right to develop property along its railway lines. This arrangement made MTRC one of the four land suppliers in Hong Kong along with the Hong Kong government, the Housing Authority, and Kowloon-Canton Railway Corporation (KCRC). MTRC was active in the development, management, rental and sale of commercial and residential properties near its existing railway land assets. 1. Compute the cost of debt for MTRC. CASE QUESTIONS 2. Compute the cost of equity for MTRC using the dividend growth model 3. Compute the cost of equity for MTRC using the CAPM D K = p +9 K=ty + 8(Tm- 7) 4. Compute the cost of capital for MTRC (using CAPM) 5. How would you recommend that MTRC should employ this cost of capital?