Answered step by step
Verified Expert Solution
Question
1 Approved Answer
plz do all parts Genedak-Hogan's WACC. Use the table in the popup window, to answer the problem. Genedak Hogan (G-H) is an American conglomerate that
plz do all parts
Genedak-Hogan's WACC. Use the table in the popup window, to answer the problem. Genedak Hogan (G-H) is an American conglomerate that is actively debating the impacts of international diversification of its operations on its capital structure and cost of capital. The firm is planning on reducing consolidated debit after diversification. Senior management at Genedak-Hogan is actively debating the implications of diversification on its cost of equity. All agree that the company's returns will be less correlated with the reference market ratum in the future, the financial Advisors believe that the market wil so an additional 3,4% risk premium for going International to the basic CAPM cost of equity. Calculate the weighted average cost of capital for Genedak-Hogan before and after international diversification a. Did the reduction in debt costa reduce ne firm's weighted average cost of capital? How would you describe the impact of international diversification on its couts of capital? b. Adding the hypothetical risk premium to the cost of equity (an added 3.4% to the cost of equity because of international diversification), what is the firm's WACC? a. Without the hypothetical additional risk premium, what is Genedak-Hogan's cost of equity before international diversification of as operations? D> (Round to two decimal places.) Data table (Click on the icon to import the table into a spreadsheet.) Symbol Pjm om ki Assumptions Correlation between G-H and the market Standard deviation of G-H's returns 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 Before Diversification 0.87 29.3% 17.5% 3.0% 0.0% 7.5% 5.8% 30% 37% 63% After Diversification 0.68 25.9% 17.5% 3.0% 3.4% 6.8% 5.8% 30% 31% 69% RPM ka km - ka t DIV EIV Print Done Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started