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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Definitions:

Exit Price

The amount that could be received for selling an asset or transferring a liability in an orderly transaction between market participants at the measurement date.

Asset

Resources owned or controlled by a person or company, capitalized on the balance sheet, expected to provide future economic benefits.

Financial Statement Forecasts

Projections of future financial performance, often including income statements, balance sheets, and cash flow statements, based on expected economic conditions and company strategies.

Management Compensation

The total remuneration, including salaries, bonuses, shares, and options, given to the executive management team for their services to the company.