Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You would like to estimate the WACC for a new business in Colombia. You are given the following US industry data from last year: Bebt

You would like to estimate the WACC for a new business in Colombia. You are given the following US industry data from last year:

Bebt ($mm) Equity ($mm) Equity Beta Tax Rate
A 33 28 1,2 20%
B 69 73 1,1 30%
C 36 87 0,8 35%

The new business will be 40% financed by debt and you estimate the cost of debt will be 12%. You also estimate a tax rate of 30%. The S&P 500 index return is 8% (a.c.a.) and the risk-free rate is 4% (a.c.a). If the expected inflation in the US is 2%, the expected inflation in Colombia is 3,3% and Colombia's country risk premium is 1,97%, what is approximately the new business WACC? (Use Hamada formula)

A. 10%

B. 12%

C. 15%

D. 17%

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Public Finance

Authors: Richard W. Tresch

2nd Edition

0126990514, 978-0126990515

More Books

Students also viewed these Finance questions

Question

a sin(2x) x Let f(x)=2x+1 In(be)

Answered: 1 week ago

Question

Discuss communication challenges in a global environment.

Answered: 1 week ago