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121 Ganado and Equity Risk Premiums. Maria Gonzalez, Ganado's Chief Financial Officer, estimates the risk-free rate to be 3.30%, the company's credit risk premium is
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Ganado and Equity Risk Premiums. Maria Gonzalez, Ganado's Chief Financial Officer, estimates the risk-free rate to be 3.30%, the company's credit risk premium is 4.10%, the domestic beta is estimated at 1.01, the international beta is estimated at 0.78, and the company's capital structure is now 80% debt. The before-tax cost of debt estimated by observing the current yield on Ganado's outstanding bonds combined with bank debt is 8.30% and the company's effective tax rate is 39%. Calculate both the CAPM and ICAPM weighted average costs of capital for the following equity risk premium estimates. a. 7.80% b. 6.90% c. 5.10% d. 4.20% Step by Step Solution
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