XYZ Electronic Ltd. is a company that produces electronics equipment for commercial and residential customers. XYZ Electronic Ltd. is a publicly listed company and it currently has 20

million ordinary shares on issue. The beta of its share is 1.2. Government bonds are currently trading at 3% per annum and the market risk premium is 7%.

(a) XYZ Electronic Ltd. is forecasting to pay a dividend of $0.4 in the coming year and the dividend is expected to grow at a rate of 5% per annum. Calculate the cost of equity for

ordinary shares and the value of ordinary shares.

b XYZ Electronic Ltd. has 1 million preference shares outstanding with a current market price at $90 per share. The par value of the preference shares is $100. Preference shares

pay a constant dividend of $5 per year. Calculate the cost of the equity for preference sharesand the value of preference shares.