Ganado's Cost of Capital. Maria Gonzalez, Ganado's Chief Financial Officer, estimates the risk$-$free rate to be $3\mathrm{.}50\%,$ the company's credit risk premium is $4\mathrm{.}10\%,$ the domestic beta is estimated at $1\mathrm{.}11,$ the international beta is estimated at $0\mathrm{.}82,$ and the company's capital structure is now $80\%$ debt. The expected rate of return on the market portfolio held by a well$-$diversified domestic investor is $9\mathrm{.}30\%$ and the expected return on a larger globally integrated equity market portfolio is $8\mathrm{.}30\%.$ The before$-$tax cost of debt estimated by observing the current yield on Ganado's outstanding bonds combined with bank debt is $8\mathrm{.}20\%$ and the company's effective tax rate is $40\%.$ For both the domestic CAPM and ICAPM, calculate the following:

a$.$ Ganado's cost of equity

b$.$ Ganado's after$-$tax cost of debt

c$.$ Ganado's weighted average cost of capital

a$.$ Using the domestic CAPM, what is Ganado's cost of equity?

$\%($Round to two decimal places.$)$

Thunderhorse Oil. Thunderhorse Oil is a U$.$S$.$ oil company. Its current cost of debt is $7\mathrm{.}30\%,$ and the $10-$year U$.$S$.$ Treasury yield, the proxy for the risk$-$free rate of interest, is $3\mathrm{.}00\%.$ The expected return on the market portfolio is $8\mathrm{.}50\%.$ The company's effective tax rate is $42\%.$ Its optimal capital structure is $20\%$ debt and $80\%$ equity.

a$.$ If Thunderhorse's beta is estimated at $1\mathrm{.}10,$ what is Thunderhorse's weighted average cost of capital?

b$.$ If Thunderhorse's beta is estimated at $0\mathrm{.}70,$ significantly lower because of the continuing profit prospects in the global energy sector, what is Thunderhorse's weighted average cost of capital?

a$.$ If Thunderhorse's beta is estimated at $1\mathrm{.}10,$ what is Thunderhorse's weighted average cost of capital?

$9\mathrm{.}05\%($Round to two decimal places.$)$

McDougan Associates $($USA$).$ McDougan Associates, a U$.$S$.-$based investment partnership, borrows $70,000,000$ at a time when the exchange rate is $$1\mathrm{.}3306=1\mathrm{.}00.$ The entire principal is to be repaid in three years, and interest is $6\mathrm{.}950\%$ per annum, paid annually in euros. The euro is expected to depreciate vis$--$vis the dollar at $2\mathrm{.}6\%$ per annum. What is the effective cost of this loan for McDougan?

Complete the following table to calculate the dollar cost of the euro$-$denominated debt for years $0$ through $3.$ Enter a positive number for a cash inflow and negative for a cash outflow. $($Round the amount to the nearest whole number and the exchange rate to four decimal places.$)$

Year $0$

$70,000,000$

Expected exchange rate, $$=1\mathrm{.}00$

$1\mathrm{.}3306$

Dollar equivalent of euro$-$denominated cash flow

$

$

$

$

WestGas Conveyance, Inc. WestGas Conveyance, Inc., is a large U$.$S$.$ natural gas pipeline company that wants to raise $$120$ million to finance expansion. WestGas wants a capital structure that is $50\%$ debt and $50\%$ equity. Its corporate combined federal and state income tax rate is $36\%.$ WestGas finds that it can finance in the domestic U$.$S$.$ of $$20$ million, and these cost figures show the component costs, each, of debt and equity if raised $50by$ debt and $50\%$ by equity. A London bank advises WestGas that U$.$S$.$ dollars could be raised in Europe at the following costs, also in multiples of $$20$ million, while maintaining the $\frac{50}{50}$ capital structure. Each increment of cost would be influenced by the total amount of capital raised. That is$,$ if WestGas first borrowed $$20$ million in the European market at $8\%$nd matched this with an additional $$20$ million of equity, additional debt beyond this amount would cost $11$ Ris the United States and $10\%$ Europe. The same relationship holds for equity financing.

a$.$ Calculate the lowest average cost of capital for each increment of $$40$ million of new capital, where WestGas raises $$20$ million in the equity market and an additional $$20$ in the debt market at the same time.

a$.$ If WestGas plans an expansion of