Answer all questions and show necessary work.

Problem1 Booyah is a publicly traded company that sells both computer hardware and services. It has no debt outstanding or cash. In the most recent year, the company reported the following information about its two businesses Revenues (in $ millions) Enterprise Value/Sales Unlevered Beta Business Computer hardware Computer services $1,000 S500 1.29 0.9 0.7 2.1 The company also provides the breakdown of revenues geographically Marginal tax rate Total Revenues (in $ millions) Country United States China Riskfree rate In local currency Equity Risk Premium 4.00% 5.00% 40.00% $ 26.00% $ 750 750 7.00% 9.00% Both countries have the same mix of hardware &service businesses. a. Estimate the cost of equity in US dollars for Booyah (2 points) b. Now assume that Booyah wants to sell just its hardware business in the United States at fair value (based on the EV/Sales ratio for the sector) in the United States, borrow an additional $350 million in the US and invest the total amount in computer services in China. Estimate the cost of equity in US $ for Booyah after the transaction. (3 points) Problem1 Booyah is a publicly traded company that sells both computer hardware and services. It has no debt outstanding or cash. In the most recent year, the company reported the following information about its two businesses Revenues (in $ millions) Enterprise Value/Sales Unlevered Beta Business Computer hardware Computer services $1,000 S500 1.29 0.9 0.7 2.1 The company also provides the breakdown of revenues geographically Marginal tax rate Total Revenues (in $ millions) Country United States China Riskfree rate In local currency Equity Risk Premium 4.00% 5.00% 40.00% $ 26.00% $ 750 750 7.00% 9.00% Both countries have the same mix of hardware &service businesses. a. Estimate the cost of equity in US dollars for Booyah (2 points) b. Now assume that Booyah wants to sell just its hardware business in the United States at fair value (based on the EV/Sales ratio for the sector) in the United States, borrow an additional $350 million in the US and invest the total amount in computer services in China. Estimate the cost of equity in US $ for Booyah after the transaction. (3 points)