You are the Finance Manager at Fitness Forever. A current issue is on how to determine the company's cost of capital. You are provided with the following information:

The company has 10 million common stocks and RM5 million of irredeemable 13% debentures outstanding. The current market interest on debentures is 10%.

Fitness Forever's beta value is 1.2 and the market rate of return is estimated to be 12%. Government investments offer a risk-free rate of 5%.

Fitness Forever shares are trading at RM2.05 cum dividend and a 15 cent dividend is payable in the immediate future. The CEO however, expects the dividend to grow by 8% per annum for the years to come.

Required:

(a) Use the Capital Asset Pricing Model (CAPM) and dividend model to calculate Fitness Forever's cost of equity and find its weighted average cost of capital.

(b) Evaluate the TWO (2) methods and their practical relevance for financial managers.