Robert Downey is the new finance manager in Avengers Corporation. The companies were considering expanding their business internationally. Currently the 9-month treasury bills are at 5.2 percent and the company risk premium is at 10 percent. The domestic beta is estimated at 1.2 while the international beta at 1.45. The company's capital structure comprises of 40 percent debts and the balance is equity. He also has gathered the other financial details as following: Assumptions Domestic International (%) (%) 8 12.5 Cost of debt, before tax Corporate income tax Return on market portfolio 20 30 15.0 18 Based on the information given, compute the Weighted Average Cost of Capital (WACC) for both domestic and international company.
Robert Downey is the new finance manager in Avengers Corporation. The companies were considering expanding their business internationally. Currently the 9-month treasury bills are at 5.2 percent and the company risk premium is at 10 percent. The domestic beta is estimated at 1.2 while the international beta at 1.45. The company's capital structure comprises of 40 percent debts and the balance is equity. He also has gathered the other financial details as following: Assumptions Domestic International (%) (%) 8 12.5 Cost of debt, before tax Corporate income tax Return on market portfolio 20 30 15.0 18 Based on the information given, compute the Weighted Average Cost of Capital (WACC) for both domestic and international company.
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
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Transcribed Image Text:Robert Downey is the new finance manager in Avengers Corporation. The companies
were considering expanding their business internationally. Currently the 9-month
treasury bills are at 5.2 percent and the company risk premium is at 10 percent. The
domestic beta is estimated at 1.2 while the international beta at 1.45. The company's
capital structure comprises of 40 percent debts and the balance is equity. He also has
gathered the other financial details as following:
Assumptions
Domestic
International
(%)
(%)
8
12.5
Cost of debt, before tax
Corporate income tax
Return on market portfolio
20
30
15.0
18
Based on the information given, compute the Weighted Average Cost of Capital
(WACC) for both domestic and international company.
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