Genedak-Hogan Cost of Equity.Use the table in the popup window, to answer the problem.Genedak-Hogan (G-H) 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 Genedak-Hogan 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 3.2% risk premium for "going international" to the basic CAPM cost of equity. Calculate Genedak-Hogan's cost of equity before and after international diversification of its operations, with and without the hypothetical additional risk premium, and comment on the discussion.

Assumptions	Before Diversification	After Diversification
Correlation between G-H and the market	0.91	0.74
Standard deviation of G-H's returns	29.2%	25.3%
Standard deviation of market's returns	17.3%	17.3%
Risk-free rate of interest	3.3%	3.3%
Additional equity risk premium for internationalization	0.0%	3.2%
Estimate of G-H's cost of debt in U.S. market	7.5%	6.8%
Market risk premium	5.3%	5.3%
Corporate tax rate	39%	39%
Proportion of debt	31%	24%
Proportion of equity	69%	76%