4. Tata's Cost of Capital. Tata is the largest and most successful specialty goods company based in India. It has not entered the North American marketplace yet, but is considering establishing both manufactur- ing and distribution facilities in the United States through a wholly owned subsidiary. It has approached two different investment banking advis- ers, Goldman Sachs and Bank of New York, for esti- mates of what its costs of capital would be several years into the future when it planned to list its American subsidiary on a U.S. stock exchange. Using the following assumptions by the two different advis- ers, calculate the prospective costs of debt, equity, and the WACC for Tata.

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Goldman Bank of Capital Cost Component Symbol Sachs NY Risk-free rate of interest 3.0% 3.0% Average equity market return 9.0% 12.0% Estimated cost of debt, single-A Estimated correlation of Tata with market Estimated standard deviation of Tata's returns 75% 7.8% Pjm 0.90 0.85 24.0% 30.0% Estimated standard deviation of market's returns m 18.0% 22.0% Recommended debt to capital structure DIV 35% 40% Recommended equity to capital structure E/V 65% 60% Estimated effective U.S. tax rate 35% 35%