Ganado's Cost of Capital.Maria Gonzalez, Ganado's Chief Financial Officer, estimates the risk-free rate to be

3.70%,

the company's credit risk premium is

3.60%,

the domestic beta is estimated at

1.07,

the international beta is estimated at

0.83,

and the company's capital structure is now

65%

debt. The expected rate of return on the market portfolio held by a well-diversified domestic investor is

9.50%

and the expected return on a larger globally integrated equity market portfolio is

8.70%.

The before-tax cost of debt estimated by observing the current yield on Ganado's outstanding bonds combined with bank debt is

8.10%

and the company's effective tax rate is

35%.

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

Question content area bottom

Part 1

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