Explain the process to get to the answer:

10) Kelbasa is a Polish company. The Polish risk free rate is 6 percent. The risk premium in the Polish stock market is 15 percent. Kelbasas beta is 3.2 when measured against the Polish market. Kelbasas pretax borrowing cost in Poland on new long-term zloty denominated debt is 10 percent. The debt to equity ratio for Kelbasa is 40 percent. Interest payments are tax deductible in Poland at the marginal corporate tax rate of 45%. Kelbasa could appeal to international investors by listing on the New York stock exchange. If they chose to do so, Kelbasa could borrow Polish zloty in the New York market at a pretax cost of 8 percent. International investors are willing to tolerate a 48 percent debt-to-equity mix at this cost of debt. With a 48 percent debt to equity ratio, the beta of Kelbasa is 2.8 against the MSCI world index. The risk premium on the world market portfolio is 9 percent. Suppose Kelbasa generated after-tax operating cash flow of 100 million Polish zloty last year, and that earnings are expected to grow at 5 percent perpetually. Find Kelbasas value assuming they do not have access to the international capital markets (segmented markets). Show all necessary calculations to support your answer.

Ke= 6% + 3.2(15%)= 54%

D/E= 40% = .4/1 D=.4 E=1 D+E=V=1.4

Kwacc= 1/1.4(54%)+.9/1.4(10%)(1-.45)= 40.14%

V= 100,000,000(1.055)

Value of a Constant Growth Company
Enter 1 if market is segmented	1
Expected Earnings next year	105,000,000
	Domestic	Global
Risk Free Rate	6.00%	6.00%
Pre-Tax Debt rate	10.00%	8.00%
Market Rate	21.00%	15.00%
Beta	3.20	2.80
Tax Rate	45.00%	45.00%
Weight of Debt	28.57%	32.43%
Weight of Equity	71.43%	67.57%
Growth Rate	5.00%	5.00%
	Segmented	Integrated
Cost of Equity	54.00%	31.20%
WACC	40.14%	22.51%
Value	298,780,488	599,722,136
Difference	300,941,649
Appropriate Value	298,780,488