Multinational Business Finance Fourteenth Edition David K. Eiteman

Chapter 13

4. Nestl of Switzerland Revisited. Nestl of Switzerland is revisiting its cost of equity analysis in 2014.As a result of extraordinary actions by the Swiss Central Bank, the Swiss bond index yield (10-year maturity) has dropped to a record low of 0.520%. The Swiss equity mar- kets have been averaging 8.400% returns, while the Financial Times global equity market returns, indexed back to Swiss francs, is at 8.820%. Nestls corporate treasury staff has estimated the companys domestic beta at 0.825, but its global beta (against the larger global equity market portfolio) at .515. a. WhatisNestlscostofequitybasedonthedomes- tic portfolio of a Swiss investor? b. What is Nestls cost of equity based on a global portfolio for a Swiss investor?