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Genedak - Hogan's WACC and Effective Tax Rate. Use the table in the popup window, , to answer the problem. Genedak - Hogan ( G
GenedakHogan's WACC and Effective Tax Rate. Use the table in the popup window, to answer the problem. GenedakHogan is an American conglomerate that is actively debating the impacts of international diversification of its operations on its capital structure and cost of capital. The firm is planning on reducing consolidated debt after diversification. Senior management at GenedakHogan is actively debating the implications of diversification on its cost of equity. All agree that the company's returns will be less correlated with the reference market return in the future, the financial advisors believe that the market will assess an additional risk premium for "going international" to the basic CAPM cost of equity. Many MNEs have greater ability to control and reduce their effective tax rates when expanding international operations. Assume that GenedakHogan was able to reduce its consolidated effective tax rate from to after international diversification.
a Calculate the weighted average cost of capital for GenedakHogan before and after international diversification.
b Adding the hypothetical risk premium to the cost of equity an added to the cost of equity because of international diversification what is the firm's WACC before and after international diversification?
c If GenedakHogan was able to reduce its consolidated effective tax rate from to what would be the impact on its WACC?
a Without the hypothetical additional risk premium, what is GenedakHogan's cost of equity before international diversification of its operations?
Round to two decimal places.
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