Assume the Following Information for Pexi Co

question 9

Multiple Choice

Assume the following information for Pexi Co.,a U.S.-based MNC that is considering obtaining funding for a project in Germany:
U.S.risk-free rate = 4%
German risk-free rate = 5%
Risk premium on dollar-denominated debt provided by U.S.creditors = 3%
Risk premium on euro-denominated debt provided by German creditors = 4%
Beta of project = 1.2
Expected U.S.market return = 10%
U.S.corporate tax rate = 30%
German corporate tax rate = 40%
What is Pexi's cost of dollar-denominated equity

• A) 12.0%.
• B) 11.2%.
• C) 10.0%.
• D) 7.2%.

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