Question
Maria Gonzalez, Ganado's Chief Financial Officer, estimates the risk-free rate to be 3.80%, the company's credit risk premium is 4.40%, the domestic beta is estimated
Maria Gonzalez, Ganado's Chief Financial Officer, estimates the risk-free rate to be 3.80%, the company's credit risk premium is 4.40%, the domestic beta is estimated at 0.98, the international beta is estimated at 0.73, and the company's capital structure is now 20% debt. The expected rate of return on the market portfolio held by a well-diversified domestic investor is 9.6% and the expected return on a larger globally integrated equity market portfolio is 8.6% The before-tax cost of debt estimated by observing the current yield on Ganado's outstanding bonds combined with bank debt is 8.50% and the company's effective tax rate is 40%. For both the domestic CAPM and ICAPM, calculate the following:
A. Ganados Cost of equity
B. Ganados after-tax cost of debt
C. Ganados weighted average cost of capital
A. Using the domestic CAPM, what is Ganados cost of equity?
Using the ICAPM, what is Ganados cost of equity
B. Using the domestic CAPM, what is Ganados after-tax cost of debt?
Using the ICAPM, what is Ganados after tax cost of debt?
C. Using the domestic CAPM, what is Ganados weighted average cost of capital?
Using the ICAPM what is Ganados weighted average cost of capital?
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