a. The risk-free rate is 3.5% and the expected market return on the portfolio is 10%. What is the expected return on a share equity portfolio with a beta equal to 1.6?
b. 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 $15, and the company just paid dividend of $3.00 yesterday. What is the cost of ordinary share equity for this company?
c. As at 30 June you obtain the following information for Sydney Ltd:
i. The estimated required rate of return on equity after company tax but before personal tax is 16.5%
ii. The estimated cost of debt before tax is 9.24%
iii. Net debt as at 30 June 2021 is $244m
iv. The number of shares on issue is 231.mm The share price of Sydney is 3.34
v. Assume that the effective tax rate on gross free cash flows is the current corporate tax rate (Base rate Entity) is 27.50%.
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.