Reference no: EM133227514
Question
The risk-free rate is 2.25% and the expected market return on the portfolio is 11%. What is the expected return on a share equity portfolio with a beta equal to 1.3?
Sydney Ltd expects its growth in ordinary share dividends to be a very steady 3.5 per cent per year for the indefinite future. The company's share is currently selling $30, and the company just paid dividend of $2.50 yesterday. What is the cost of ordinary share equity for this company?
As of 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 15.0%
The estimated cost of debt before tax is 7.5%
Net debt as of 30 June 2021 is $250m
The number of shares on issue is 250m
The share price of Sydney is $3.00
Assume that the effective tax rate on gross free cash flows is the current corporate tax rate (non-Base rate Entity) is 30%.
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.