Assume that Walmart is considering opening a store in Argentina. Argentina is rate BB-, and its...

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Finance

Assume that Walmart is considering opening a store in Argentina.Argentina is rate BB-, and its dollar-based bonds trade at adefault spread of 3% over the US treasury bond rate of 6.5%. TheArgentine equity market is 1.8 times more volatile than theArgentine long-term bond market. Walmart has a beta of 0.9 (alreadyrelevered to account for the Argentinian tax rate of 35% andArgentinian D/E ratio). The market risk premium in the UnitedStates is 5.5%. The firm intends to borrow in Argentina at a localrate of 12% (in pesos) and maintain a debt ratio of 25% forArgentine projects. You can assume that the inflation rate in theUnited States is 3% whereas it is 9% in Argentina.
(a)Â Â Â Â Explainwhat we mean by â€œthe inflation rateâ€ in the above description.
(b)Â Â Â Â Estimatethe cost of equity and the cost of capital in dollar terms for theArgentine store.
Estimate the cost of equity and capital in peso terms of theArgentine store.

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a Inflation rate basically measures the change in purchasing power of a currency from one time period to another If an item today costs 90 then its cost after one year will not be 90 but would have See Answer

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