Use the Information for the Question(s)below

question 38

Essay

Use the information for the question(s)below.
Luther Industries,a U.S.Corporation,is considering a new project located in Great Britain.The expected free cash flows from the project are detailed below: You know that the spot exchange rate is S = 1.8862/£.In addition,the risk-free interest rate on dollars and pounds is 5.4% and 4.6% respectively.Assume that these markets are internationally integrated and the uncertainty in the free cash flow is not correlated with uncertainty in the exchange rate.You have determined that the dollar WACC for these cash flows is 10.2%.
-Calculate the pound denominated cost of capital for Luther's project.

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Organizations or structures that are recognized by the law as capable of rights and obligations, such as corporations, partnerships, and trusts.

Repudiated

When a party refuses to acknowledge or fulfill their contractual obligations, effectively rejecting the contract.

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The capability of a contract or legal agreement to be legally compelled or upheld in a court of law.

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The legal ability, competency, or power of an individual or entity to enter into binding contracts or perform some act.