(The following information applies to the next four problems.)

An analyst has collected data about Devers Co. and a world market index. The world market index implies an equity risk premium of 5 percent, and Devers has a beta of 1.2 with respect to the index. The appropriate risk-free return is 4 percent. Analysts also estimate that the firms beta calculated with respect to U.S. markets is equal to 1.5 and the domestic risk premium is 6%. For the project they are considering in Argentina, a segmented market risk premium of 13 percent is calculated and the segmented beta with respect to this factor is 0.8. The Argentinas country credit spread is 7% and the ratio of market standard deviation in Argentina to market standard deviation in the U.S. is 1.6. for the country risk rating approach, analyst estimate the a = 0.35 and d = -0.07, and the country risk rating is 40.

9. If Devers is estimating the cost of common equity for subsidiaries in developed, integrated foreign markets, what is the appropriate cost of common equity?

a. 10.0%

b. 12.1%

c. 16.8%

d. 18.4%

e. 20.4%

10. If Devers is estimating the cost of common equity for Argentina, according to the global segmented CAPM, what is the appropriate cost of common equity?

a. 10.0%

b. 12.1%

c. 16.8%

d. 18.4%

e. 20.4%

11. If Devers is estimating the cost of common equity for Argentina, according to country credit spread approach, what is the appropriate cost of common equity?

a. 10.0%

b. 12.1%

c. 16.8%

d. 18.4%

e. 20.4%

12. If Devers is estimating the cost of common equity for Argentina, according to country risk rating approach, what is the appropriate cost of common equity?

a. 10.0%

b. 12.1%

c. 16.8%

d. 18.4%

e. 20.4%