Question
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%
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