Assignment:
Q1. Suppose that a foreign project has a beta of 0.85, the riskfree return is 12%, and the required return on the market is estimated at 19%. What is the cost of capital for the project?
Q2. IBM is considering having its German affiliate issue a 10- year, $100 million bond denominated in euros and priced to yield 7.5%. Alternatively, IBM’s German unit can issue a dollar-denominated bond of the same size and maturity and carrying an interest rate of 6.7%.
a. If the euro is forecast to depreciate by 1.7% annually, what is the expected dollar cost of the eurodenominated bond? How does this compare to the cost of the dollar bond?
b. At what rate of euro depreciation will the dollar cost of the euro-denominated bond equal the dollar cost of the dollar-denominated bond?
c. Suppose IBM’s German unit faces a 35% corporate tax rate. What is the expected after-tax dollar cost of the euro-denominated bond?
Your answer must be, typed, double-spaced, Times New Roman font (size 12), one-inch margins on all sides, APA format and also include references.