Kashmiri is the largest and most successful specialty goods company based in Bangalore, India. It has not yet entered the North American marketplace, but is considering establishing both manufacturing and distribution facilities in the United States through a wholly owned subsidiary. It has approached two different investment banking advisors, Goldman Sachs and Bank of New York, for estimates of what its costs of capital would be several years into the future when it planned to list its American subsidiary on a U.S. stock exchange. Using the following assumptions by the two different advisors, calculate the prospective costs of debt, equity, and the WACC for Kashmiri (U.S.):

Transcribed Image Text:

Goldman Bank of New York Assumptions Estimate of correlation between security and market Estimate of standard deviation Pm of Tata's returns Estimate of standard deviation ơ of market's return Risk-free rate of interest Estimate of Tata's cost of debt in U.S. market Estimate of market return, forward-looking Corporate tax rate Symbol Sachs 0.90 0.85 24.0% 30.0% 18.0% 3,0% 7.5% 9.0% 22.0% kr kd 3,0% 7.8% 12.0% 35.0% 35% 65% 35.0% DN Proportion of equity EN