Ganado and Equity Risk Premiums. Maria Gonzalez, Ganado's Chief Financial Officer, estimates the risk-free rate...
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Ganado and Equity Risk Premiums. Maria Gonzalez, Ganado's Chief Financial Officer, estimates the risk-free rate to be 3.60%, the company's credit risk premium is 4.40%, the domestic beta is estimated at 1.05, the international beta is estimated at 0.85, and the company's capital structure is now 30% debt. The before-tax cost of debt estimated by observing the current yield on Ganado's outstanding bonds combined with bank debt is 8.40% and the company's effective tax rate is 35%. Calculate both the CAPM and ICAPM weighted average costs of capital for the following equity risk premium estimates. a. 8.00% b. 7.00% c. 5.00% d. 4.00%
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