In part a of the question, how to choose between Latin America market and domestic market?

For example, for the first 50 million, why choosing Latin America in debt market?

www Home insert Page Layout Formulas Data Revlew View X vom@a v Q Problem 13.6 PetraPK (1' Petro-U_K. is a British energy rm that needs to raise 150 million to finance expansion projects. Suppose that PetroUK. is seeking a capital structure comprising 30% debt and 70% equity. The corporate tax rate in the UK. is 21%. Petro-U.K. finds that it can raise nance in the domestic London stock market as follows: both debt and equity would have to be sold in multiples of 50 million (30% debt and 70% equity). For equity and debt respectively, the nancing costs are 8% and 6% on the UK. market and 10% and 8% on the Latin A consultancy rm advises PetrinK. that incremental finance could be raised in multiples of 50 million (maintaining the 30/70 capital structure). Each increment of cost would be inuenced by the total amount of capital raised. For equity and debt respectively, the rst increment of 50 million (30% debt and 70% equity) would 13 cost 10% and 8% on the UK. market and 12% and 10% on the Latin American market. The second increment of 50 million would cost 14 12% and 10% on the U.K. market and 16% and 14% on the Latin American market. 15 16 1 Calculate the lowest average cost of capital for each increment of 150 million of new capital? where PetrinK. raises 45 million in 17 the equity market and an additional 105 million in the debt market at the same time. 18 19 b. If PetroU.K. plans an expansion of only 75 million, how should that expansion be nanced? What will be the weighted average cost 20 of capital for the expansion? 21 2.2 Assumptions Values g Corporate tax rate 21% A Desired capital structure: 25 Proportion debt 30% 26 Proportion equity 70% Capital to be raised 150,000,000 A chap 13 [Protected View] - Microsoft Excel (Product Activation Failed) X File Home Insert Page Layout Formulas Data Review View v? -P X Q46 fx A B C D E G H K M N P Q 29 Cost of Cost of Cost of Cost of 30 Domestic Domestic Latin American Latin American 31 Costs of Raising Capital in the Marke Equity Debt Equity Debt 32 Up to f50 million of new capital 8% 6% 10% 8% 33 f50 million to f100 million of new capi 10% 8% 12% 10% 34 Above f100 million 12% 10% 16% 14% 35 36 37 Incremental 38 a. To raise $150 million Debt Market Debt Cost Equity Market Equity Cost WACC 39 40 First $50 million Latin America 8.00% Domestic 8.00% 7.50% 41 Second $50 million Latin America 10.00% Latin America 12.00% 10.77% 42 Third $50 million Domestic 10.00% Domestic 12.00% 10.77% 43 44 Weighted average cost 9.33% 10.67% 9.68% 45 (equal weights) (equal weights) 46 47 48 Incremental 49 b. To raise $75 million Debt Market Debt Cost Equity Market Equity Cost WACC 50 51 First $50 million Latin America 8.00% Domestic 8.00% 7.50% 52 Over f50 million Latin America 10.00% Latin America 12.00% 10.77% 53 54 Weighted average cost 8.67% 9.33% 8.59% Activate Windows Pbm13.3 Pbm13.4 /Pbm13.5 Pbm13.6 /Pbm13.7 /Pbm13.8 /Pbm13.9 /Pbm13.10 Pbm13.11 /Pbm13.12 Go to Settings to activate Windows. IIII Ready 0 13 130% + sem 09 X Address VO A 9x ) VIE 22:18 28/03/2019