HappyHerbs Ltd has a debt-equity ratio of 2, a weighted average cost of capital (WACC) of 10% and a cost of debt of 7%. What is the cost of equity? If the company changes its level of debt explain what will happen to the WACC.
BigBank Ltd has just paid a dividend of $2.00 per share. The company is expected to achieve a constant growth rate of 5% in dividends forever. If the share price today is $40, what is the estimate of the company’s cost of equity? Describe one advantage and one disadvantage of estimating the cost of equity using this method