1. Suppose the domestic U.S. beta of IBM is 1.0, the expected return on the U.S. market portfolio is 12 percent, and that the U.S. T-bill rate is 6 percent. At same time, suppose the world beta measure of IBM is 0.80 and the expected return on the world market portfolio is 14%.
   1. Find the cost of equity capital for IBM assuming that the U.S. market is fully integrated.
   2. Find the cost of equity capital for IBM assuming that the U.S. market is segmented
2. Blues, Inc. is a multinational corporation based in the U.S. Blues would like to estimate its weighted average cost of capital. On average, Blues pays a pre-tax rate of 9 percent for its debt. Currently, T-bill rates are 3 percent. The return on the S&P 500 stock index is expected to be 10 percent and the return on the world market portfolio is expected to be 14 percent. Furthermore, Blues stock has a domestic U.S. beta of 1.5 and a world beta of 1.2. Blues target capital structure is 30 percent debt and 70 percent equity. If Blues is in the 35 percent tax bracket,
   1. what is its weighted average cost of capital assuming that the U.S. market is fully integrated?
   2. what is its weighted average cost of capital assuming that the U.S. market is segmented?