Genedak-Hogan's WACC. 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 the weighted average cost of capital for Genedak-Hogan before and after international diversification. a. Did the reduction in debt costs reduce the firm's weighted average cost of capital? How would you describe the impact of international diversification on its costs of capital? b. Adding the hypothetical risk premium to the cost of equity (an added 3.2% to the cost of equity because of international diversification), what is the firm's WACC? D a. Without the hypothetical additional risk premium, what is Genedak-Hogan's cost of equity before international diversification of its operations? % (Round to two decimal places.) h example Get more help Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Assumptions Symbol Correlation between G-H and the market Pjm Before Diversification 0.89 After Diversification 0.69 Standard deviation of G-H's returns 28.1% 25.3% Standard deviation of market's returns Om 18.4% 18.4% Risk-free rate of interest Kit 3.9% 3.9% Additional equity risk premium for internationalization RPM 0.0% 3.2% Estimate of G-H's cost of debt in U.S. market kd 7.3% 6.8% Market risk premium km-kd 5.5% 5.5% Corporate tax rate Proportion of debt Proportion of equity t 30% 30% DIV 33% 26% EIV 67% 74% Print Done Clear all Check answer