HSA Corporation operates in two types of businesses – soft drinks and food products, and has operations in two countries – U.S. and Turkey.

• The firm had operating income of $2.45 million on its U.S. operations, with 80% coming from soft drinks and 20% from food products, and of $1.87 million from its Turkish operations, with 60% from soft drinks and 40% from food products. (Assume that value is proportional to operating income).

• The unlevered beta for soft drink firms is 0.88 and the unlevered beta for food products is 1.05.

• Turkey is rated Ba1, the default spread is 2.4% for Ba1 rated countries and the Turkish equity index is twice as volatile as the Turkish long-term bond return.

  Assuming that HSA Corp has no debt outstanding, estimate the cost of equity for the firm (in $). The U.S treasury bond rate is 4.5% and the market risk premium for U.S. is 4%. You can assume that value is proportional to operating income and that beta also measures exposure to country risk

a. Estimate the unlevered beta for the firm.
b. Estimate the cost of equity for the U.S. operation.
c. Estimate the cost of equity for the Turkish operation.