EBK CORPORATE FINANCE
EBK CORPORATE FINANCE
4th Edition
ISBN: 8220103164535
Author: DeMarzo
Publisher: PEARSON
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Chapter 31, Problem 5P

You work for a U.S. firm, and your boss has asked you to estimate the cost of capital for countries using the euro. You know that S = $1.20/ € and F1 = $1.157 / €. Suppose the dollar WACC for your company is known to be 8%. If these markets are internationally integrated, estimate the euro cost of capital for a project with free cash flows that are uncorrelated with spot exchange rates. Assume the firm pays the same tax rate no matter where the cash flows are earned.

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