Please Show Your Work and Use the Following Information to Answer Questions 1 - 3

A MNE has a capital structure with the following features:$150,000,000 in 30-year domestic bonds yielding 7.5% annually with $6 million in floatation costs:

$100,000,000 in 10-year foreign bonds yielding 8.0% annually with $8 million in floatation costs.

$300,000,000 in common stock trading on the home market with a beta of 1.4.

$200,000,000 in common stock trading on a foreign exchange with a beta of 1.8.

1. If the MNE has a marginal income tax rate of 40% at home and 25% in the foreign country, what is its respective after-tax cost of debt at home and abroad?

A) 7.5%; 8.0%

B) 7.80%; 8.64%

C) 7.63%; 8.80%

D) There is not enough information to answer the question.

E) none of the above

2. If the two markets where the companys common stock trades are integrated, the risk-free rate of return is 4% and the return on the market portfolio is 10%, what is the companys cost of equity, respectively, at home and abroad?

A) 14.8%; 16.2%

B) 12.4%; 14.8%

C) 10.6%; 12.4%

D) There is not enough information to answer the question.

E) none of the above

3. What is the companys weighted average cost of capital (WACC)?

A) 11.61%

B) 10.82 %

C) 12.37%

D) There is not enough information to answer the question.

E) none of the above