question archive 1) Company A's capital structure contains 30% debt and 70% equity, whereas Company B's capital structure contains 40% debt and 60% equity

1) Company A's capital structure contains 30% debt and 70% equity, whereas Company B's capital structure contains 40% debt and 60% equity

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1) Company A's capital structure contains 30% debt and 70% equity, whereas Company B's capital structure contains 40% debt and 60% equity. Both companies pay 10% interest rate on their debt.

The shares of company A have a beta 1.3 and the shares of company B have a beta 1.2, the risk-free rate on the economy is 3% and the expected return on the market is 9%.

Using the above information, calculate the following:

a.     Cost of equity for Company A and Company B.                                      

b.     WACC for company A.                                                                         

c.     WACC for company B.                                                                        

Tax rate of 30%

2.     Jim Ltd.'s next dividend will be $4, the dividend is expected to grow at 8% p.a., for the following 4 years. After that the growth rate in dividends will be 4% per year indefinitely. Required rate of return is 10% p.a.

Required:

Calculate the current value of Jim Ltd.'s shares.

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