HELP, I need the steps and not in EXCEL Assume the following information for a U

Question

HELP, I need the steps and not in EXCEL

Assume the following information for a U.S.-based MNC that is considering obtaining funding for a project in France: U.S. risk-free rate = 2% France risk-free rate = 5% Risk premium on dollar-denominated debt provided by U.S. creditors = 3% Risk premium on euro-denominated debt provided by French creditors = 4% Beta of the project with respect to the U.S. stock market = 1.2 Beta of the project with respect to the French stock market=2.5 Expected U.S. stock market return = 7% Expected French stock market return=9% U.S. corporate tax rate = 30% French corporate tax rate = 40% What is the cost of euro-denominated equity for this firm?

Explanation / Answer

Risk free rate in France = 5%

Beta of project in France = 2.5

French stock market return = 9%

Cost of euro-denominated equity for firm is calculated below using CAPM model:

Cost of euro-denominated equity = Risk free rate + (Market Return - Risk free rate) × Beta

                                                      = 5% + (9% - 5%) × 2.50

                                                      = 5% + 4% × 2.50

                                      = 5% + 10%

                                      = 15%

Hence, Cost of euro-denominated equity for firm is 15%.

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