Ganado's Cost of Capital. Maria Gonzalez, Ganado's Chief Financial Officer, estimates the risk-free rate to...
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Ganado's Cost of Capital. Maria Gonzalez, Ganado's Chief Financial Officer, estimates the risk-free rate to be 3.30%, the company's credit risk premium is 4.50%, the domestic beta is estimated at 1.19, the international beta is estimated at 0.91, and the company's capital structure is now 75% debt.The expected rate of return on the market portfolio held by a well-diversified domestic investor is 8.90%, and the expected return on a larger globally integrated equity market portfolio is 7.90%. The before-tax cost of debt estimated by observing the current yield on Ganado's outstanding bonds combined with bank debt is 8.00% and the company's effective tax rate is 38%. For both the domestic CAPM and ICAPM, calculate the following (Round to two decimal places):
a. Ganado's cost of equity
b. Ganado's after-tax cost of debt
c. Ganado's weighted average cost of capital
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