Assume the following information for Sazea Bhd. a U.S. based MNC that is considering to obtain funding for a project in Malaysia: U.S. risk-free rate = 4% Malaysian risk-free rate = 5% Risk premium on dollar-denominated debt provided by U.S. creditors = 3% Risk premium on euro-denominated debt provided by Malaysian creditors = 4% Beta of project = 1.2 Expected U.S. market return = 10% U.S. corporate tax rate = 30% Malaysian corporate tax rate = 40% Calculate Sazea’s cost of dollar-denominated equity.

Assume the following information for Sazea Bhd. a U.S. based MNC that is considering to obtain funding for a project in Malaysia: U.S. risk-free rate = 4% Malaysian risk-free rate = 5% Risk premium on dollar-denominated debt provided by U.S. creditors = 3% Risk premium on euro-denominated debt provided by Malaysian creditors = 4% Beta of project = 1.2 Expected U.S. market return = 10% U.S. corporate tax rate = 30% Malaysian corporate tax rate = 40% Calculate Sazea’s cost of dollar-denominated equity.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter18: Long-term Debt Financing

Section: Chapter Questions

Problem 20QA

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Question

Assume the following information for Sazea Bhd. a U.S. based MNC that is considering to obtain funding for a project in Malaysia:

U.S. risk-free rate = 4%

Malaysian risk-free rate = 5%

Risk premium on dollar-denominated debt provided by U.S. creditors = 3%

Risk premium on euro-denominated debt provided by Malaysian creditors = 4%

Beta of project = 1.2

Expected U.S. market return = 10%

U.S. corporate tax rate = 30%

Malaysian corporate tax rate = 40%

Calculate Sazea’s cost of dollar-denominated equity.

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