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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
- 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%.
- Find the cost of equity capital for IBM assuming that the U.S. market is fully integrated.
- Find the cost of equity capital for IBM assuming that the U.S. market is segmented
- 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,
- what is its weighted average cost of capital assuming that the U.S. market is fully integrated?
- what is its weighted average cost of capital assuming that the U.S. market is segmented?
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