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Question 1 a. Agbosome Electrical company currently pays an annual dividend of GHc 2 per...

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Finance

Question 1 a. Agbosome Electrical company currently pays an annual dividend of GHc 2 per share. Currently, the company's equity share or common stock has a market value of GHc 32.3 per share. If the annual dividends are expected to grow at 5% per year. i. Compute the cost of the equity share or common share. 2 marks b. Agbosome Electrical holds the following mix of funding sources each with a given cost except preference share as follow: Capital components Value Cost Debt 50,000 6.25% Preference shares 40,000 9.6% Ordinary shares 90.000 2 i. Using your answer in (), calculate the weighted average cost of capital. 3 marks ii. Discuss any three advantages of debt financing over equity. 3 marks c. Consider the following hypothetical firms with their respective beta ABC MNO ORS XYZ Beta 1 0.85 i. Which firm has the highest risk? 1 mark ii. Which firm is risk free? 1 mark iii. Which firm's returns will be equal to the market returns? 1 mark d. Suppose that the expected return on 182-Days Treasury bill is 15.2%, the expected return on the market is 15.75%, and the beta of Agbosome Electricals is 1.3. 1.2 i. Compute the required rate of return? ii. Would your answer in (v) change if beta changes to 1 and why? 2 marks 2 marks Total marks

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