A US firm, Eggmart Corporation is considering opening a store in Uruguay.The following information applies:

Uruguay is rated B+ and its dollar-based bonds trade at a default spread of 5% over the US treasury bond rate of 6.5%.

The Uruguayan equity market has an average volatility of 0.80 while the volatility of its long-term bond market is 0.50.

Eggmart in the US has an equity beta of 0.9 and there is a debt beta in of 0.1. (Assume the debt beta will be 0.1 in Uruguay as well.) The tax rate for the company in the US is 35% while it is only 30% in Uruguay.

The market risk premium in the US is 5.5%.

Eggmart intends to borrow in Uruguay at a local rate of 20% (in pesos) and maintain a debt ratio of 40% for Uruguayan projects in line with its debt ratio of 40% in the United States.

The inflation rate is 3% in the United States and 15% in Uruguay.

REQUIRED:

(a)Estimate the cost of equity in US dollar terms for the Uruguayan store.

(b)Estimate the cost of capital (WACC) in US dollar terms for the Uruguayan store.

(c)Estimate the cost of equity in Uruguayan peso terms for the Uruguayan store.

(d)Estimate the cost of capital in Uruguayan peso terms for the Uruguayan store.