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Maria? Gonzalez, Ganado's Chief Financial? Officer, estimates the? risk-free rate to be 3.00%, the? company's credit risk premium is 3.80?%, the domestic beta is estimated at 1.14?, the international beta is estimated at 0.93, and the? company's capital structure is now 55?% debt. The expected rate of return on the market portfolio held by a? well-diversified domestic investor is 9.8?% and the expected return on a larger globally integrated equity market portfolio is 8.80%. The? before-tax cost of debt estimated by observing the current yield on? Ganado's outstanding bonds combined with bank debt is 7.80?% and the? company's effective tax rate is 40%. For both the domestic CAPM and? ICAPM, calculate the? following:

a.? Ganado's cost of equity

b.? Ganado's after-tax cost of debt

c.? Ganado's weighted average cost of capital

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M92744312

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