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ABC Inc,located in Halifax,produces Towels and Is Considering the Establishment of of a Foreign

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Essay

ABC Inc.,located in Halifax,produces towels and is considering the establishment of a foreign operation in Indonesia ABC wants to know its weighted average cost of capital and the cost of capital of an equivalent all-equity financed firm.The interest rate on Indonesian government securities is 18% and on Canadian government securities it is 5%.The Indonesian income tax rate is 40% and the Canadian income rate is 35%.ABC Inc.debt-to-equity ratio is 1:3 and its cost of equity financing is 12%.


Definitions:

Post Hoc

is a term derived from the phrase "post hoc ergo propter hoc," meaning "after this, therefore because of this," commonly used to describe a logical fallacy where one event is incorrectly assumed to cause another just because it occurred earlier.

Economic Reasoning

Refers to the process of making decisions based on comparing costs and benefits.

Marginal Costs

The added expense to produce one more item; it can decrease or increase depending on production size and efficiency.

Marginal Benefits

The boost in satisfaction or usefulness derived from the consumption of an additional unit of a good or service.

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