You have taken over as CFO for United Widgets Inc. (UWI). Your first task at UWI is to calculate a cost of capital. UWI is 30% debt financed, and the debt has a yield-to-maturity of 6%. UWI faces a 30% marginal tax rate. Part of UWI’s production is in their Mexican plant. Your analyst has run the following regression for you: 

RUWI_Stock = 0.02 + .6(RUS_Market – R¬Risk_Free) - .3(RPeso)

If you estimate a 5% expected depreciation in the peso over the next year, what cost of capital would you estimate for UWI? 

Answer rating: 100% (QA)

Assuming Market rate of Return Being 16 Risk free Ra... View the full answer