Rukahia Knighting, ACCA, and Obiapeasempa King Jnr, CFA, are independently analyzing the value of Adobia Energy (Ghana) ltd stock. Adobia Energy paid dividends for the past four years as: Rukahia suspects that dividends will grow at a constant rate per year of 6.98%. Rukahia, further, estimates that the shares of Adobia Energy is trading at GH?8.50. Recently, Adobia Energy (Ghana) ltd has paid a dividend of 32.75Gp. King Jnr has, also, researched extensively on Adobia Energy (Ghana) Ltd’s stock and he discovered that the equity market, in which Adobia Energy (Ghana) ltd operates, is expected to earn 15.2%; Treasury bills are currently yielding 5%; the equity beta of Adobia Energy is estimated to be 0.6 and Adobe Energy (Ghana) ltd pays corporation tax at 35%. Meanwhile, Adobia Energy (Ghana) ltd has consistently maintained debt to equity ratio of 40% to 60%. The pre-tax weighted average cost of debt structure of Adobia Energy (Ghana) Ltd is 12.85%.
Required: Determine the approximate cost of equity and the weighted average cost of capital (WACC), correct to the nearest whole number, of Adobia Energy from the perspective of the two analysts. (10 marks)State four (4) uses of weighted average cost of capital by Adobia Energy (Ghana) ltd.
