Notes: market risk premium of 5.5% for T. Bond Rate, and 8.7% for the T. bill rate, and tax of 40% where none is specified.

Question 1: HP, the computers manufacturer is considering expanding its operations into Singapore. Analysts are trying to estimate the appropriate cost of capital to use in evaluating this expansion option and have the following information: - Beta for HP stock is 0.83 HP has traditionally used a small amount of Equity; its current equity ratio is 12%. Its planning to raise this ratio to 25%. - The pre-tax cost of debt is 8.5%. - Institutional investors hold 65% of the outstanding stocks of HP. a- Estimate the cost of equity in US dollars for this expansion if the Treasury bond rate is 7.5% b-Would your analysis have been any different if HP was privately held