The hotel company Alpha S . A . has estimated that the cash flows and initial costs
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Question:
The hotel company Alpha SA has estimated that the cash flows and initial costs required to implement an investment project are euros. The company is going to finance the investment project by issuing a bond loan worth taking a bank loan of and covering the rest with equity retained earnings of the company
Also, the following information is given on the financial structure of the project:
For equity, it is given that the current share price of the company Alpha SA is equal to euros. The company just paid a dividend of euro per share and the annual growth rate of the dividend is stable which is estimated to remain at this level for the next period.
The following data are given for foreign funds:
The bank loan will have a duration of years and will be repaid in equal installments. The annual interest rate of the loan is estimated to be
The bonds issued by the company also have a duration of years and an interest rate equal to The nominal value of the bonds amounts to euros, while their market value is equal to euros.
Use the information above to calculate:
The cost of equity capital.
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