Question
Maria Gonzalez, Ganado's Chief Financial Officer, estimates the risk-free rate to be 3.00%, the company's credit risk premium is 3.90%, the domestic beta is estimated
Maria Gonzalez, Ganado's Chief Financial Officer, estimates the risk-free rate to be 3.00%, the company's credit risk premium is 3.90%, the domestic beta is estimated at 0.97, the international beta is estimated at 0.62, and the company's capital structure is now 45% debt. The before-tax cost of debt estimated by observing the current yield on Ganado's outstanding bonds combined with bank debt is 8.40% and the company's effective tax rate is 42%.
Calculate both the CAPM and ICAPM weighted average costs of capital for the following equity risk premium estimates. debt.
a. 8.50%
b. 7.60%
c. 5.80%
d. 4.80%
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