therefore, CAPM can be use just as guidance for investors but not to ensure a
safe investment for investors.
For risk free rate, using short-term government bond may not result in
accurate figure. This is due to the change of value on daily basis and it
depends on the economy day to day performance.
12
As for beta, the figure

that was calculated might not be accurate as well, there might be uncertainty
rises which will affect the beta from time to time. Therefore, the figure of beta
was calculated based on estimation.
CAPM and DGM is imperfect for calculating cost of equity, however in this
case by theory, CAPM is suitable for calculating cost of capital.
3.2Cost of Debt
Cost of debt is how much a company need to pay for using debt to finance the
company. In other words, it is the effective rate that the company have to pay
for its debts. Cost of debt also act as the company tax shield when it comes to
taxation. The cost of debt will reduce the taxable income of the company
therefore, there will be less tax imposed to the company. To calculate cost of
debt, the following formula is used:
r
d
=
Pre
−
tax cost of debts×
(
1
−
tax rate
)
In this case, Berjaya Auto Berhad currently did not have any interest rate
bearing debts and long-term loan
13
as well as year 2015
14
and year 2014.
15
Therefore, it is impossible to calculate cost of debt for Berjaya Auto Berhad.
3.3Weighted Average Cost of Capital (WACC)
To calculate weighted average cost of capital, the following formula is used:
WACC
=
r
e
w
e
+
r
d
w
d
(
1
−
T
c
)
+
r
p
w
p
From the formula above,
r
e
is the cost of equity,
w
e
is the weight of
equity,
r
d
is the cost of debt,
w
d
is the weight of debt,
T
c
is the
corporate tax rate,
r
p
is the cost of preference shares and
w
p
is the
weight of preference shares.