11. Do multinational firms have higher or lower betas then their domestic counterparts?

12. Ferrari, the famous high-performance automotive group, launched its initial public offering (IPO) on October 20, 2015. Although the share price had initially risen to over 57 euros () per share, by the end of the year it had settled to 48 euros (). Ferrari had been owned by Fiat (Italy), and had never calculated its own cost of capital before, one independent of Fiat. It now needed to, and one of its first challenges was estimating its beta. With only two months of trading to base it on, the corporate treasury group had started with what were considered "comparable firms," which, for Ferrari, meant firms in the luxury goods industry, not automotive. Luxury goods were historically less volatile than the market, so the initial guess on Ferrari's beta was 0.90. Using the following assumptions, answer the questions.

Component Value Italian risk-free cost of debt in Euros 4.00%

Ferrari's cost of debt in Euros 3.99%

Italian corporate income tax rate 33.50%

Ferrari's prospective beta 0.90

Italian equity market risk premium 5.50%

Ferrari's shares outstanding 189,000,000

Ferrari's share price in Euros 48.00

Ferrari's outstanding debt in Euros 510,000,000

12. What are: a) Ferrari's after tax cost of debt in Euros b) Ferrari's cost of equity in Euros c) Ferrari's market capitalisation d) Ferrari's total value of equity outstanding e) The proportion of Ferrari's capital structure that is equity f) The proportion of Ferrari's capital structure that is debt g) Ferrari's weighted average cost of capital h) Ferrari's WACC if its beta was 1.20

13. Thunderhorse Oil is a US oil company. It's current cost of debt is 7% and the risk free rate is 3%. The expected return on the market portfolio is 8%. The company's effective tax rate is 39%. It's optimal capital structure is 60% debt and 40% equity. a) If Thunderhorse's beta is 1.1, what is its WACC b) If its beta was 0.8 instead, what would its WACC be?