Kashmiri's Cost of Capital. Kashmiri is the largest and most successful specialty goods company based in Bangalore, India. It has not yet entered the North American marketplace, but is considering establishing both manufacturing and distribution facilities in the United States through a wholly owned subsidiary. It has approached two different investment banking advisors, Goldman Sachs and Bank of New York, for estimates of what its costs of capital would be several years into the future when it planned to list its American subsidiary on a U.S. stock exchange. Using the assumptions by the two different advisors in the popup window, E, calculate the prospective costs of debt, equity, and the WACC for Kashmiri (U.S.). What is the after-tax cost of debt estimated by Goldman Sachs for Kashmiri? 6.24 % (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Assumptions Symbol Goldman Sachs Bank of New York Estimate of correlation Pjm 0.86 0.36 between security and market 23.5% 29.8% Estimate of standard 0 deviation of Kashmiri's returns Estimate of standard om 18.1% 21.2% deviation of market's return Risk-free rate of interest кр 4.0% 4.0% Estimate of Kashmiri's Kd 7.3% 7.5% cost of debt in U.S. market Estimate of market km 9.4% 11.9% return, forward-looking Corporate tax rate t 35% 35% Proportion of debt DIV 25% 20% Proportion of equity E/V 75% 80% -
Kashmiri's Cost of Capital. Kashmiri is the largest and most successful specialty goods company based in Bangalore, India. It has not yet entered the North American marketplace, but is considering establishing both manufacturing and distribution facilities in the United States through a wholly owned subsidiary. It has approached two different investment banking advisors, Goldman Sachs and Bank of New York, for estimates of what its costs of capital would be several years into the future when it planned to list its American subsidiary on a U.S. stock exchange. Using the assumptions by the two different advisors in the popup window, E, calculate the prospective costs of debt, equity, and the WACC for Kashmiri (U.S.). What is the after-tax cost of debt estimated by Goldman Sachs for Kashmiri? 6.24 % (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Assumptions Symbol Goldman Sachs Bank of New York Estimate of correlation Pjm 0.86 0.36 between security and market 23.5% 29.8% Estimate of standard 0 deviation of Kashmiri's returns Estimate of standard om 18.1% 21.2% deviation of market's return Risk-free rate of interest кр 4.0% 4.0% Estimate of Kashmiri's Kd 7.3% 7.5% cost of debt in U.S. market Estimate of market km 9.4% 11.9% return, forward-looking Corporate tax rate t 35% 35% Proportion of debt DIV 25% 20% Proportion of equity E/V 75% 80% -
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
None
Transcribed Image Text:Kashmiri's Cost of Capital. Kashmiri is the largest and most successful specialty goods company based in Bangalore, India. It has not yet entered the North American marketplace, but is
considering establishing both manufacturing and distribution facilities in the United States through a wholly owned subsidiary. It has approached two different investment banking advisors,
Goldman Sachs and Bank of New York, for estimates of what its costs of capital would be several years into the future when it planned to list its American subsidiary on a U.S. stock exchange.
Using the assumptions by the two different advisors in the popup window,, calculate the prospective costs of debt, equity, and the WACC for Kashmiri (U.S.).
What is the after-tax cost of debt estimated by Goldman Sachs for Kashmiri?
6.24% (Round to two decimal places.)
Data table
(Click on the following icon in order to copy its contents into a spreadsheet.)
Assumptions
Estimate of correlation
Symbol
Pjm
Goldman
Sachs
Bank of
New York
0.86
0.36
between security and market
23.5%
29.8%
Estimate of standard
0
deviation of Kashmiri's returns
Estimate of standard
бт
18.1%
21.2%
deviation of market's return
Risk-free rate of
Kyf
4.0%
4.0%
interest
Estimate of Kashmiri's
Kd
7.3%
7.5%
cost of debt in U.S. market
Estimate of market
km
9.4%
11.9%
return, forward-looking
Corporate tax rate
t
35%
35%
Proportion of debt
DIV
25%
20%
Proportion of equity
E/V
75%
80%
-
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education