QUESTION FOUR (4)Lexton Limited has an equity beta of 1.10. The market risk premium in Zambia is expectedCRM RAto be 5% and the yield on government bonds is currently 7.5%. Lexton has issued bondsand its K100 par value bond is currently trading at K94.50. The coupon rate is 8%. Thematurity date is five years' time and the corporation tax rate is 28%. Interest is payableannually in arrears, The company has just paid the coupon interest for the current year.REQUIRED:a) What is Lexton's cost of equity, based on the Capital Asset Pricing Model (CAPM)?(5 Marks)b) What is the after cost of debt?(5 Marks)c) Lexton paid a dividend of KO.12 per share and the dividend per share is expected togrow at 7% indefinitely. The company's share price is K2.30. What is the company'scost of equity using the dividend growth model?(8 Marks)d) What is the weighted average cost of capital (WACC) if the target debt-equity ratio is50%? (Use the cost of equity as per CAPM)(7 Marks)[TOTAL: 25 MARKS]•Ke= 0.75 +0.05 (1.10) -kd (1.-10-80599we (20) / (1-1)-0.05 (1) 164712-425Page 6 of 1514341-0-28)68.0450(149)-2.461

a) Cost of equity using CAPM: Cost of equity = Risk-free rate + (Beta × Market risk premium) Given:…

Answered: QUESTION FOUR (4) Lexton Limited has an…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter11: The Cost Of Capital

Section: Chapter Questions

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