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Suppose your company manufactures soft drink and is based in the US. You aim to expand overseas into Australia. In order to do this, you
Suppose your company manufactures soft drink and is based in the US. You aim to expand overseas into Australia. In order to do this, you must determine the appropriate cost of equity for that subsidiary. You have decided that Coca Cola Amatil is a good comparable firm. You have found that its beta is 0.26. Their debt/equity ratio is 0.8. You beleive that the subsidiary will be able to support a debt/equity ratio of 0.37. Suppose that the corporate tax rate for Coca Cola Amatil is 30%, but you think it would only be 20% for the subsidiary due to its low income. The anticipated risk free rate is 2.5% and the anticipated market risk premium is 5.5%. What is the subsidiary's cost of equity? O a. 3.930000 O b. 4.003333 O c. 3.654083 O d. 3.688000 O e. 4.241200 Of. Not enough information
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