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International Capital Structure and the Cost of Capital chapter 16

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International Capital Structure and the Cost of Capital chapter 16

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    1. International Capital Structure and the Cost of Capital (chapter 16)

    2. Cost of Capital

    4. Cost of Capital in Segmented vs. Integrated Markets

    5. Cost of Capital in Segmented vs. Integrated Markets

    6. Example: Cost of capital for Nestle

    7. Exam type question Royal Dutch Petroleum, a large multinational corporation, has an equity market value of 100 billion dollars and a value of its outstanding debt estimated at 30 billion dollars. The equity beta for Royal Dutch, based on the world market index, is 1.1; the risk free rate is 3% and the expected return on the world market index is 10%. The corporate tax rate is 40% and the cost of debt capital is 6%. Calculate Royal Dutch’s weighted average cost of capital. Answer: The debt weight is 0.3 (30b./100b.) and the equity weight is 0.7. Kl= Rf+beta*(Rw-Rf)=3%+1.1*(10%-3%)=10.7% WACC= 0.7*10.7%+0.3*(1-0.4)*6%= 8.57%

    8. Does the Cost of Capital Differ among Countries?

    13. Learning outcomes

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