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Kashmiri is the largest and most successful specialty goods company based in Bangalore, India. It has not yet entered the North American marketplace, but is

Kashmiri is the largest and most successful specialty goods company based in Bangalore, India. It has not yet entered the North American marketplace, but is considering establishing both manufacturing and distribution facilities in the United States through a wholly owned subsidiary. It has approached two different investment banking advisors, Goldman Sachs and Bank of New York, for estimates of what its costs of capital would be several years into the future when it planned to list its American subsidiary on a U.S. stock exchange. Using the assumptions by the two different advisors in the table below, calculate the prospective costs of debt, equity, and the WACC for Kashmiri (U.S.).

Assumptions

Goldman

Sachs

Bank of

New York

Estimate of correlation

between security and

market

0.90

0.85

Estimate of standard

deviation of Kashmiri's

returns

24.0%

30.0%

Estimate of standard

deviation of market's

return

18.0%

22.0%

Risk-free rate of

interest

3.0%

3.0%

Estimate of Kashmiri's

cost of debt in U.S.

market

7.5%

7.8%

Estimate of market

return, forward-looking

9.0%

12.0%

Corporate tax rate

35%

35%

Proportion of debt

35%

40%

Proportion of equity

65%

60%

What is the after-tax cost of debt estimated by Goldman Sachs for Kashmiri?

What is the after-tax cost of debt estimated by Bank of New York for Kashmiri?

What is the cost of equity estimated by Goldman Sachs for Kashmiri?

What is the cost of equity estimated by Bank of New York for Kashmiri?

What is the WACC estimated by Goldman Sachs for Kashmiri?

What is the WACC estimated by Bank of New York for Kashmiri?

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