Type your question here 2. Delta Inc. purchases raw materials and has processing

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Type your question here

2. Delta Inc. purchases raw materials and has processing plants around the world. It also has an international market for its products. Because of its presence in so many countries Delta has the ability to raise capital around the world in several different markets. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

a) If Delta has an average pre-tax cost of debt of 8%, a cost of equity of 13%, and an average tax rate of 40%, what is its after-tax cost of debt?

b) Assume Delta Inc. has an average pre-tax cost of debt of 8%, an average tax rate of 40%, and an international equity beta of 1.2. The risk-free rate of return is anticipated to be 4% and the return to the international market portfolio to be 12%. If the firm finances 40% with debt and 60% with equity, what is Delta

Explanation / Answer

a)0.08*(1-.4)-0.048=4.8%....b)0.4*0.08*(1-.4)+0.6*0.13=9.72%....c)

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