Use the following information to answer questions 10 through 12. Genedak-Hogan is an American conglomerate which is

Question:

Use the following information to answer questions 10 through 12. Genedak-Hogan is an American conglomerate which is actively debating the impacts of international diversification of its operations on its capital structure and cost of capital. The firm is planning on reducing consolidated debt after diversification.

Senior management at Genedak-Hogan is actively debating the implications of diversification on its cost of equity. Although both parties agree that the company's returns will be less correlated with the reference market return in the future, the financial advisors believe that the market will assess an additional 3.0% risk premium for 'going international' to the basic CAPM cost of equity. Calculate Genedak-Hogan's cost of equity before and after international diversification of its operations, with and without the hypothetical additional risk premium, and comment on the discussion.

Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a... Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...