Genedak-Hogan's WACC and Effective Tax Rate Use the table in the pool window. Ito answer the problem Garda Hogan (His an American conglomerate that is actively debating the impact of international diversification of its operations on its capital structure and cost of capital. The firm is planning on reducing consolidated debatter diversification Senior management at Genea Hogan is actively debating the uplications of divendication on its cost of outy A agree that the company's returns will be less correlated with the reference market return in the future, the financial advisors believe that the market wil additional 3.3. ik premium for going international to the basic CAPM cost of equity. Many MNEs have greater ability to control and reduce the effective tax rates when expanding international operations. Assume that Gendak Hogan was able to reduce its consolidated effective tax rate from 3 to 34% interational diversification a. Calculate the weighted average cost of capital for Genedak Hogan before and after international diversification b. Adding the hypothetical risk premium to the cost of equity (an added 3.5% to the cost of equity because of international diversification), what is the firm's WADO before and after international diversification? c. If Genocuk Hogan was able to reduce its commodited effective tax rate from 39% 10 34% what would be the impact on its WACC? a. Without the hypothetical additional eink premium, what is Genedak-Hogan's cost of quity before international diversification of its operations? 11.15% (Round to two decimal places) Without the hypothetical additonal rok premium, what is Genadak Hogan's cont of equity after international diversification of its operationa? 9.24 % (Round to two decimal places) Without the hypothetical additional risk promium, what is Genadak-Hogan's WACC belore International diversification of its operations? 8.92 % (Round to two decimal places.) Without the hypothetical additiorvat risk premium what in Genedak-Hogar'a WACC after international diversification of its operation? On (Round to two decimal places.) - quity. As Frate con th 3,3 and tod Data table Sossan ve tax rates hational (Click on the loon to import the table into a spreadsheet.) te Is WACC th Hal dal Symbol Pime Before Diversification 0.86 the 29.9% 18.9% 3.4% 0.0% R Assumptions Correlation between G-H and the market Standard deviation of G-H's retums Standard deviation of market's returns Risk-free rate of interest Additional equity risk premium for internationalization Estimate of G-H's cost of debt in U.S. market Market risk premium Corporate tax rate Proportion of debt Proportion of equity ko After Diversification 0.76 25.5% 18.9% 3.4% 3.3% 6.9% 5.7% 39% 27% 73% RPM ka 7.29 Rol km-kr DH 5.7% 39% 33% 67% DIV EMV Ro Print Done Genedak-Hogan's WACC and Effective Tax Rate Use the table in the pool window. Ito answer the problem Garda Hogan (His an American conglomerate that is actively debating the impact of international diversification of its operations on its capital structure and cost of capital. The firm is planning on reducing consolidated debatter diversification Senior management at Genea Hogan is actively debating the uplications of divendication on its cost of outy A agree that the company's returns will be less correlated with the reference market return in the future, the financial advisors believe that the market wil additional 3.3. ik premium for going international to the basic CAPM cost of equity. Many MNEs have greater ability to control and reduce the effective tax rates when expanding international operations. Assume that Gendak Hogan was able to reduce its consolidated effective tax rate from 3 to 34% interational diversification a. Calculate the weighted average cost of capital for Genedak Hogan before and after international diversification b. Adding the hypothetical risk premium to the cost of equity (an added 3.5% to the cost of equity because of international diversification), what is the firm's WADO before and after international diversification? c. If Genocuk Hogan was able to reduce its commodited effective tax rate from 39% 10 34% what would be the impact on its WACC? a. Without the hypothetical additional eink premium, what is Genedak-Hogan's cost of quity before international diversification of its operations? 11.15% (Round to two decimal places) Without the hypothetical additonal rok premium, what is Genadak Hogan's cont of equity after international diversification of its operationa? 9.24 % (Round to two decimal places) Without the hypothetical additional risk promium, what is Genadak-Hogan's WACC belore International diversification of its operations? 8.92 % (Round to two decimal places.) Without the hypothetical additiorvat risk premium what in Genedak-Hogar'a WACC after international diversification of its operation? On (Round to two decimal places.) - quity. As Frate con th 3,3 and tod Data table Sossan ve tax rates hational (Click on the loon to import the table into a spreadsheet.) te Is WACC th Hal dal Symbol Pime Before Diversification 0.86 the 29.9% 18.9% 3.4% 0.0% R Assumptions Correlation between G-H and the market Standard deviation of G-H's retums Standard deviation of market's returns Risk-free rate of interest Additional equity risk premium for internationalization Estimate of G-H's cost of debt in U.S. market Market risk premium Corporate tax rate Proportion of debt Proportion of equity ko After Diversification 0.76 25.5% 18.9% 3.4% 3.3% 6.9% 5.7% 39% 27% 73% RPM ka 7.29 Rol km-kr DH 5.7% 39% 33% 67% DIV EMV Ro Print Done
