A New Zealand firm, Pipi Ltd is considering setting up a project in Ruritania (whose currency is the kronor). The following information applies: - Ruritania's bonds trade at a default spread of 2.5% over the NZ government bond rate of 2%. - The Ruritanian equity market has an average volatility of 0.9 while the volatility of its long-term bond market is 0.5 . - The relevant beta for Pipi Ltd in New Zealand is 1.8 and the tax rate for the company in NZ is 25% while it is 35% in Ruritania. Please assume that no debt beta is necessary. - The market risk premium in NZ is 4.5%. - Pipi Ltd intends to borrow in Ruritania at a local rate of 12% (in Ruritanian kronors) and maintain a debt ratio of 40% for Ruritanian projects in line with its debt ratio of 40% in NZ. - The inflation rate is 1% in NZ and 8% in Ruritania. Required: (a) Estimate the cost of equity in NZ dollar terms for Pipi's possible Ruritanian project. ( 7 marks) (b) Estimate the cost of capital (WACC) in NZ dollar terms for Pipi's possible Ruritanian project