The Fussballer Company, which is headquartered in the U.S., is considering a three-year project in Germany that requires an initial investment of 1.2 million in fixed assets (note: all values are in Euros). Fussballer has also spent 80,000 in a market survey for the project. The operating cash flow (OCF) is estimated to be 450,000 in year 1, 475,000 in year 2, and 550,000 in year 3. At the end of the project, the fixed assets can be sold for 300,000. Assume a tax rate of 21% and straight-line depreciation. The initial required investment in net working capital is 150,000 and increases by 50,000 (note: to 200,000) in year 1.

b) Next, calculate the Cost of Equity (R_S) using the CAPM, if the risk free rate is 0.3%, the global market index return is 8%, and the company's systematic risk compared to the global index is 2.5.Given the Cost of Equity you just calculated, an average YTM of the company's bonds of 4%, and a debt/equity ratio of 1, what is the firm's WACC (Note: round the WACC to 5 decimal places)?

 

Answer rating: 100% (QA)

To calculate the Cost of Equity RS using the Capital Asset Pricing Model CAPM you can use the formul... View the full answer