PLC USA Inc. is the one of the largest and most successful battery manufacturing company based in NJ, USA. It has not entered the Chinese marketplace yet, but is considering establishing both manufacturing and distribution facilities in China through a wholly owned subsidiary. It has approached investment banker, JPM, for estimates of what its costs of capital would be. JPM provided PLC with the following estimates:

Risk-free rate of interest 3.0%

Estimate of PLC's cost of debt in Chinese market 6.5%

Estimate of market return, forward looking 12%

Corporate tax rate 25%

Proportion of debt 35%

Proportion of equity 65%

Estimated Beta 1.1 (all JPM's estimates)

a.) Using the JPM estimates calculate after tax cost of debt, cost of equity, and the WACC for PLC China Inc.

b.)As an alternative to taking debt from the Chinese market, PLC is considering taking a US dollar denominated loan for PLC China subsidiary. The US dollar denominated loan has an interest rate of 3.0% however USD is expected to appreciate by 2% against CHY. If all other estimates remain the same, calculate after tax cost of debt, cost of equity and WACC for PLC.

c.) Compare the two WACCs and suggest whether PLC should select option A or option B