Q7: Cadbury manufacturer is considering expanding its operations into Korea. Analysts are trying to estimate...
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Q7: Cadbury manufacturer is considering expanding its operations into Korea. Analysts are trying to estimate the appropriate cost of capital to use in evaluating this expansion option and have collected the following information. - The Beta for Cadbury stock is 0.95. - Cadbury has traditionally used only a small amount of debt; its current debt ratio is 12%. It is planning to raise this debt ratio to 20%. (The pre-tax cost of debt is 8%). - Institutional investors hold 65% of the outstanding stock at Cadburys. A- Estimate the cost of capital in U.S dollars, for this project, if the Treasury bond rate is 7.5%. B- Did you charge a premium for currency risk? Why or why not? C- Would your analysis have been any different if Cadbury was privately held?
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