Question
Ganado's Cost of Capital. Maria Gonzales, Ganado's Chief Financial Officer, estimates the risk-free rate of 3.90%, the company's credit risk premium is 4.30%, the domestic
Ganado's Cost of Capital. Maria Gonzales, Ganado's Chief Financial Officer, estimates the risk-free rate of 3.90%, the company's credit risk premium is 4.30%, the domestic beta is estimated at 1.19, the international beta is estimated at 1.01, and the company's capital structure is now 45% debt. The expected rate of return on the market portfolio is 8.30%. The before-tax cost of debt estimated by observing the current yield on Ganado's outstanding bonds combined with bank debt is 7.70% and the company's effective tax rate 30%. For both the domestic CAPM and ICAPM, calculating the following:
A) Using domestic CAPM, what is Ganado's cost of equity? ____ Using the ICAPM, what is Ganado's cost of equity? ____
B) Using the domestic CAPM, what is Ganado's after-tax cost of debt? ____ Using the ICAPM, what is Ganado's after-tax cost of debt? ____
C) Using the domestic CAPM, what is Ganado's weighted average cost of capital? ____ Using the ICAPM, what is Ganado's weighted average cost of capital? ____
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