Eni S.p.A. is an Italian oil company. Its current cost of debt is 3.8%, and the 10-year

Question:

Eni S.p.A. is an Italian oil company. Its current cost of debt is 3.8%, and the 10-year German bond yield, the proxy for the risk-free rate of interest, is 1.4%. The expected return on the market portfolio is 8%. The company's effective tax rate is 24%. Its optimal capital structure is 60% debt and 40% equity.

a. If Eni’s beta is estimated at 1.1, what is its weighted average cost of capital?

b. If Eni’s beta is estimated at 0.8, significantly lower because of the continuing profit prospects in the global energy sector, what is Eni’s weighted average cost of capital?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Multinational Business Finance

ISBN: 9781292445960

16th Global Edition

Authors: David Eiteman, Arthur Stonehill, Michael Moffett

Question Posted: