Estimate the company cost of capital

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Q1. Sydney Ltd expects its growth in ordinary share dividends to be a very steady 5.5 per cent per year for the indefinite future. The company's share is currently selling $25, and the company just paid dividend of $2.50 yesterday. What is the cost of ordinary share equity using growth model for this company?

Q2. As at 30 June you obtain the following information for Sydney Ltd:

The estimated required rate of return on equity after company tax but before personal tax is 16.5%

The estimated cost of debt before tax is 7.5%

Net debt as at 30 June 2021 is $375m

The number of shares on issue is 250 mm

The share price of Sydney is $2.50

Assume that the effective tax rate on gross free cash flows is the current corporate tax rate is 30.00%.

Estimate the company cost of capital which can be applied to free cash flows that have had the full rate of effective corporate tax applied them.

Reference no: EM133162171

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