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Please explain step by step how to do all of these parts of the question so that I can do it again and practice with
Please explain step by step how to do all of these parts of the question so that I can do it again and practice with different numbers. Thank you!
Problem 13-4 (algorithmic) Question Help 0 Ganado and Equity Risk Premiums. Maria Gonzalez, Ganado's Chief Financial Officer, estimates the risk-free rate to be 3.60%, the company's credit risk premium is 4.50%, the domestic beta is estimated at 1.08, the international beta is estimated at 0.74, and the company's capital structure is now 40% debt. The before-tax cost of debt estimated by observing the current yield on Ganado's outstanding bonds combined with bank debt is 8.00% and the company's effective tax rate is 40%. Calculate both the CAPM and ICAPM weighted average costs of capital for the following equity risk premium estimates. a. 7.90% b. 7.00% c. 5.20% d. 4.10% a. Using the domestic CAPM, what is Ganado's weighted average cost of capital if the firm's equity risk premium is 7.90%? 9.20% (Round to two decimal places.) Using the ICAPM, what is Ganado's weighted average cost of capital if the firm's equity risk premium is 7.90%? 7.59% (Round to two decimal places.) b. Using the domestic CAPM, what is Ganado's weighted average cost of capital if the firm's equity risk premium is 7.00%? 8.62 % (Round to two decimal places.) Using the ICAPM, what is Ganado's weighted average cost of capital if the firm's equity risk premium is 7.90%? 7.19% (Round to two decimal places.) c. Using the domestic CAPM, what is Ganado's weighted average cost of capital if the firm's equity risk premium is 5.20%? 7.45 % (Round to two decimal places.) Using the ICAPM, what is Ganado's weighted average cost of capital if the firm's equity risk premium is 5.20%? 6.39 % (Round to two decimal places.) d. Using the domestic CAPM, what is Ganado's weighted average cost of capital if the firm's equity risk premium is 4.10%? 6.74% (Round to two decimal places.) Using the ICAPM, what is Ganado's weighted average cost of capital if the firm's equity risk premium is 4.10%? 0% (Round to two decimal places.)Step by Step Solution
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