What is the correct cost of capital

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Question 1: The 90 day bank bill rate is quoted as 3.8 in the financial press. What is the correct cost of capital kbb to be used in the WACC calculation. Express as a number accurate to four places (to the nearest basis point). Do not enter the % sign (eg 5.5671% should be entered as .0557). Explain the process of answer.

Question 2: What is the cost of capital for bank overdraft (kbo). The overdraft rate is 5.4 % pa compounded 12 times a year? Answer as a percentage to two decimal places. Do not enter the % sign. Explain the process of answer.

Question 3: The next dividend for ABC Limited will be $0.5 per share (D1). Investors require a 10 % return on companies such as ABC Limited. ABC's dividend increases by 5 % every year. Based on the dividend growth model what is the value of ABC Limited shares today? Price to the nearest cent. Do not enter the $ sign. Explain the process of answer.

Question 4: Calculate the cost of equity capital using CAPM if the risk-free rate of interest is 5 per cent, the return on the market portfolio is 9 per cent, the beta of the firm's assets is .8 and the and beta of equity is 1.2. Provide your answer as a percentage to two decimal places. Do not enter the % sign. Explain the process of answer.

Question 5: Assume that A limited paid a dividend of 27.1 cents per share just recently. The shares currently sell for $10.3. You also estimate that the dividend will grow steadily at 2.8 % per year into the indefinite future. What is the cost of capital, ke for A limited? Answer as a percentage accurate to two decimal places. Do not enter the % sign. Explain the process of answer.

Reference no: EM131066635

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