Orlando Co. has its US business funded with dollars with a capital structure of 60 percent debt and 40 percent equity.

It has its Thailand business funded with Thai baht with a capital structure of 50 percent debt and 50 percent equity.

The corporate tax rate on US earnings and on Thailand earnings is 30 percent. The annualized 10-year risk-free interest rate is 6 percent in the United States and 21 percent in Thailand. The annual real rate

of interest is about 2 percent in the United States and 2 percent in Thailand. Interest rate parity exists. Orlando pays 3 percentage points above the risk-free rates when it borrows, so its before-tax cost of debt is 9 percent in the United States and

24 percent in Thailand. Orlando expects that the U.S. stock market return will be 10

percent per year, and the Thailand stock market return will be 28 percent per year. Its business in the United States has a beta of .8 relative to the U.S. market, while its business in Thailand has a beta of 1.1 relative to the Thai market. The equity used to support Orlandos Thai business was created from retained earnings by the Thailand subsidiary in previous years. However, Orlando Co. is considering a stock offering in Thailand that is denominated in Thai baht and targeted at Thai investors.

a) Estimate Orlandos cost of equity in Thailand that would result from issuing stock in Thailand.

b) Estimate Orlandos cost of equity in The U.S that would result from issuing stock in the U.S.

c) Knowing that the Thai subsidiary could use US$ 20 million of retained earnings and the US business also could use US$ 20 million of retained earnings. Besides, the US business could obtain unlimited funds from loans, but the Thai subsidiary only could obtain maximize US$30 million from loans. Orlando Co. needs US$ 100 million to invest in a new subsidiary and want to keep their capital structure unchanged, how could it finance this project, estimate the WACC of project?

d) Suppose that the USD/THB = 34.56-34.75, and the Thai subsidiary only could obtain maximize THB$ 1.000 million from loans, how to the WACC of project?