Problem 14.7 Sunrise Manufacturing, Inc. Sunrise Manufacturing, Inc, a U.S. multinational company, has the following debt components in its consolidated capital section. Sunrise's finance staff estimates their cost of equity to be 20%. Current exchange rates are also listed below. Income taxes are 30% around the world after allowing for credits. Calculate Sunrise's weighted average cost of capital. Are any assumptions implicit in your calculation? Assumption Value Tax rate 30.00% 10-year euro bonds (euros) E 6,000,000 20-year yen bonds (yen) 750,000,000 Spot rate (S/euro) 1.2400 Spot rate (S/pound) 1.8600 Spot rate (yen/S) 109.00 Weighted US Dollar Pre-tax Post-tax Component Component Amount Proportion Cost (%) Cost (%) Cost (%) 25 year US dollar bonds $ 10,000,000 12.77% 6.000% 4.200% 0.5363% 5 year US dollar euronotes 4,000,000 5.11% 4.000% 2.800% 0.1430% 10 year euro bonds 7,440,000 9.50% 5.000% 3.500% 0.3325% 20 year yen bonds 6,880,734 8.79% 2.000% 1.400% 0.1230% Shareholders' equity 50,000,000 63.84% 20.000% 20.000% 12.7680% Total $ 78,320,734 100.00% WACC = 13.9027% maturity that would be needed to sell similar bonds in the marketplace today. Current yields to maturity is the proper rate to use. The interest costs used for the euro and yen bonds reflect actual expected interest costs after any exchange rate changes. This calculation assumes there is no expected change in the exchange rate over the life of the debt issue (which is indeed highly unlikely)