(Answered) Question cost of equity a foreign subsidiary does not have

Accounting

Question: Cost of Equity. A foreign subsidiary does not have an independent cost of capital. However, in order to estimate the discount rate for a comparable host-country firm, the analyst should try to calculate a hypothetical cost of capital. As part of this process, the analyst can estimate the subsidiary's proxy cost of equity by using the traditional equation: ke = krf + (km - krf). Define each variable in this equation and explain how the variable might be different for a proxy hostcountry firm compared to the parent MNE.

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