Blues, Inc. is a multinational corporation based in the U.S. The company would like to estimate its weighted average cost of capital. Blues pays an average after- tax rate of 9 percent for its debt. Currently, T-bill rates are 3 percent. Return on the S&P 500 stock index (U.S. market return) is expected to be 12 percent and return on the world market portfolio is expected to be 14 percent. Furthermore, Blues stock has a domestic U.S. beta of 1.5 and a world beta of 0.8. Blues is in the 35 percent tax bracket. If Blues has a debt-to-equity ratio of 1.5,

a. what is its weighted average cost of capital assuming that the U.S. market is segmented?

b. what is its weighted average cost of capital assuming that the U.S. market is fully integrated?