XYZ Inc. is a broadcast studio that has been in the industry for the last 25 years. It broadcasts local news channels and generates staple advertisement and product placement revenue. Since 2015, the company's revenue has plummeted because of mobile and social media. The company has decided to enter to online broadcasting space.
XYZ's share has a beta of 0.9 against the S&P/TSX Composite Index, the expected market return for the next five years is 10%, and Canadian T-bills are currently yielding 4.5%. The company's next dividend is expected to be $1.25 per share, and dividends have been growing at a 1% annual rate. The share sells for $55 per share, and it has 100 million shares outstanding.
Required:
1. The after-tax cost of debt
2. The cost of preferred shares
3. The cost of common share by using the dividend discount model and capital asset pricing
model (CAPM)
4. WACC based on DDM and CAPM
