Londell Inc. is a US company that operates in two businesses and in two countries and...

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Londell Inc. is a US company that operates in two businesses and in two countries and you have been provided the following information (with all dollar values in $ millions): Revenues Unlevered Beta MV of equity MV of debt Hotels Movies US Mexico $100.00 $ 150.00 Riskfree rate 2.50% ($) 4.00% (Pesos) 0.80 1.20 ERP 5.00% 8.00% $ 25% 25% 400.00 $ 800.00 Tax rate $ 600.00 $ 200.00 The company is rated BBB by S&P, and BBB rated bonds have a default spread of 2% over the riskfree rate. If Londell is planning to expand its movie business into Mexico, estimate the US$ cost of capital that you would use in assessing this investment, assuming it preserves its existing business-specific debt ratios. (3 points) Londell Inc. is a US company that operates in two businesses and in two countries and you have been provided the following information (with all dollar values in $ millions): Revenues Unlevered Beta MV of equity MV of debt Hotels Movies US Mexico $100.00 $ 150.00 Riskfree rate 2.50% ($) 4.00% (Pesos) 0.80 1.20 ERP 5.00% 8.00% $ 25% 25% 400.00 $ 800.00 Tax rate $ 600.00 $ 200.00 The company is rated BBB by S&P, and BBB rated bonds have a default spread of 2% over the riskfree rate. If Londell is planning to expand its movie business into Mexico, estimate the US$ cost of capital that you would use in assessing this investment, assuming it preserves its existing business-specific debt ratios. (3 points)

Answer rating: 100% (QA)

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