Question: 4. (8 points) Logan Inc., a U.S. multinational, is considering a project in France that would be financed with 40% debt and 60% equity.

4. (8 points) Logan Inc., a U.S. multinational, is considering a project

4. (8 points) Logan Inc., a U.S. multinational, is considering a project in France that would be financed with 40% debt and 60% equity. Capital markets in France are perfectly integrated. Logan's treasurer has gathered the following information. (1) Interest rate on this euro loan is 7.5% (2) Logan's tax rate is 40%, (3) spot exchange rate is 1.20 U.S. dollar per euro, and 1-year forward exchange rate = 1.25 U.S. dollar per euro. (4) A world market index has an equity risk premium of 5 percent, and Logan has a beta of 1.5 with respect to the world index. The appropriate risk-free return is 6 percent. The firms beta calculated with respect to U.S. markets is equal to 1.2 and the domestic risk premium is 7%. (1) What is the after-tax cost of Euro-denominated debt? (2) What is the cost of equity using global CAPM? (3) Based on your estimate for the previous questions, what is the project's weighted average cost of capital?

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