Problem 13.1 Ganado's Cost r Capital Market conditions have change...

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Problem 13.1 Ganado's Cost r Capital Market conditions have changed Maria Gonzalez now estimates the risk free rate tobe 3.60%.the company's credit risk premium is 4 40% the domestic beta estimated 1.05. the international beta at 85. and he company capital structure 30% debt. All other values remain the same. For both the domestic CAPM and CAPM. calculate: Ganado's cost of equity b. Ganado's cost of debt c. Ganado's weighted average cost of capital Domestic International Assumptions CAPM ICAPM Ganado's beta, 6 0.85 Risk free rate interest, krf 3.60% 3.60% Company credit risk premium 4.40% 4.40% Cost of debt, before tax, kd 8.00% 8.00% Corpori income tax rate, t 35% 35% General return on market portfolio, km 9.00% 8.00% Optimal capital structure: Proportion debt, D/V 30% 30% Proportion of equity, E/V 70% 70% a) Ganado's cost equity ke=krft ( km krf)p b) Ganade sost of debt. after tax kdx(1-t) c) Ganado's weighted average cost of capital WACC =[ke xE/V]+[(kdx(1-t))xD/] subsidiary. Estimated ke Estimated kd(1- kod(1-t) Estimated weighted d'capital WACC WACC Airlines Hong Kong Pacific Jewel US -based air freight firm with wholly owned subsidiary Homg Kong The subsidiary, Jewel Hong Komp, has just completed long term planning report for the parent company San Francisco, in which ithas estimated the following expected and payout rates for the years 2011 -2014. The current Hong Kong corporate tax rate on this category of incomei 16.5% Hone Kong imposes no withholding taxes on dividends remitted to ( U.S investors (per the Homg Konk United States bilateral tax treaty). The U.5 corporate income tax rate is 35% The parent company wants to repatriate 75% net income dividends annually. Calculate the for distribution by the Homp Komp subsidiary for the yaars 2011 2014. b. Whatis the amount dividend expected b be remitted the J.S. parent each year? After estimation tar liability o the expected d vidend 'wbut is often terreed gross-ap in the S.) what is the total videad after taxes expected ex year? d. What effective income per year? Country Corporate Dividend payout 75.0% Withholding Jewel Hong Kong US$) 2014 Earnings before Less interest Earnings before 12,600 Less Hong Kong a. Net income Retained earnings Dividend Taxation 2013 2014 Gross dividend Less dividend Add Add back Theoretical Additional Excess foreign dividend, Totaltaxes paid Income before d. Effective (taxes paid/income

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