QUESTION 6 (6 marks total) A specialty goods company based in Pakistan is considering establishing manufacturing facilities in the United States through a wholly owned subsidiary. It has approached two different investment banking advisors; Investor advisor A and Investor advisor B for estimates of what its costs of capital would be several years into the future when it planned to list its American subsidiary on a U.S. stock exchange. The following assumptions are provided by the two different advisors: Assumptions Estimated beta: Risk-free rate of interest Estimate of Company's cost of debt in US market Expected rate of return on market portfolio of stocks Corporate tax rate Proportion of debt Proportion of equity Investor advisor A 1.18 2.8% 7.5% 9.2% 35.0% 34% 66% Investor advisor B 1.14 2.8% 7.8% 12.3% 35.0% 40% 60% Using the assumptions listed above, calculate for each Investor advisor: a) the company's cost of equity b) the company's cost of debt c) the company's weighted average cost of capital (2 marks) (2 marks) (2 marks)