apple Inc. is a company that derives equal portions of its revenues from the telecom and entertainment businesses. The company has targeted a debt to capital ratio of 80% for the firm and an after-tax cost of debt of 3%. The beta for the entertainment business is 0.80 and the beta for telecom business is 1.20 ; the risk free rate in US dollars is 2.5% and the equity risk premium is 5%. apple is considering a new project in the entertainment business that will be funded entirely with debt. What cost of capital should you use in assessing this project?

Select one:

a. 3.70%

b. 5.80%

c. 8.50%

d. 6.60%

e. 7.40%

question 2 :

Costa Inc. is a Colombia coffee company. You have computed a synthetic rating of BBB (with a default spread of 3%) for the company. The US treasury bond rate is 3%, the Colombian Government US $ bond rate is 5.4% and the Colombian Government Peso bond rate is 6.5%. What is the peso pre-tax cost of debt for Costa?

Select one:

a. 9.5%

b. 6.5%

c. 5.0%

d. 8.4%

e. 3.00%