Question: You are working in an MNC which is pursuing a new foreign project. Your MNC has a group-wide debt-equity ratio of 1:2, pre-tax cost of

You are working in an MNC which is pursuing a new foreign project. Your MNC has a group-wide debt-equity ratio of 1:2, pre-tax cost of debt 8 percent, the tax rate of 30% and a cost of equity capital of 15%. However, the systematic risk of the new project is estimated to be lower than the group and hence the required return on equity is estimated to be 12% but the cost of debt capital is expected to be 10 percent (pre-tax). 


What is the foreign project's weighted average cost of capital?

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