Reference no: EM131066635

Question 1: The 90 day bank bill rate is quoted as 3.8 in the financial press. What is the correct cost of capital k_bb 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 (k_bo). 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.