Question
Use the following information for Firm A, a German.-based corporation that needs funding for a project in the U.S. to answer the question below. U.S.
Use the following information for Firm A, a German.-based corporation that needs funding for a project in the U.S. to answer the question below.
U.S. risk-free rate = 4%
German risk-free rate = 5%
Risk premium on dollar-denominated debt provided by U.S. creditors = 3%
Risk premium on euro-denominated debt provided by German creditors = 4%
Beta of project = 1.5
Expected U.S. market return = 10%
Expected German market return = 15%
Spot rate = $1.10/€
Forward rate = $1.09/€
U.S. corporate tax rate = 30%
German corporate tax rate = 40%
What is Pexi's cost of dollar-denominated equity? (Please show your work)
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