The equity of Ruby Developments has a beta of 1.1. The earnings of Ruby are expected to grow at 5 per cent indefinitely. Ruby maintains a constant payout ratio. The risk-free rate is 4 per cent and the expected return on the market is 10 per cent. Its last dividend was 20 cents per share and a share is currently selling for $3.40. a. Calculate the cost of equity using the CAPM and the dividend growth model. Comment on the results. b. If the cost of Ruby 's debt is 8 per cent, the target debt–equity ratio is 1:3 and the current tax rate is 30 per cent, what is the weighted average cost of capital for Ruby?