MNC’s cost of Capital Slater Co. is a U.S.-based MNC that finances all of its operations with debt and equity. It borrows U.S. funds at an interest rate of 11 percent per year. The long-term risk-free rate in the United States is 7 percent. The stock market return in the United States is expected to be 15 percent annually. Slater’s beta is 1.4. Its target capital structure is 20 percent debt and 80 percent equity. Slater Co. is subject to a 30 percent corporate tax rate (federal and state combined). Estimate the cost of capital to Slater Co.

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 17, Problem 29QA
Textbook Problem

MNC’s cost of Capital Slater Co. is a U.S.-based MNC that finances all of its operations with debt and equity. It borrows U.S. funds at an interest rate of 11 percent per year. The long-term risk-free rate in the United States is 7 percent. The stock market return in the United States is expected to be 15 percent annually. Slater’s beta is 1.4. Its target capital structure is 20 percent debt and 80 percent equity. Slater Co. is subject to a 30 percent corporate tax rate (federal and state combined). Estimate the cost of capital to Slater Co.

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