Singa Group is a Singaporean multinational companies. Below are the pertaining informations of the company.
Estimated return of the Singaporean market portfolio | 15% |
Singapore 10-Year Government Bond | 3% |
Singa Group’s beta | 1.35% |
Cost of debt before tax | 6% |
Singapore’s Corporate Tax | 17% |
Optimal Capital Structure (Portion of Debt) | 30% |
Optimal Capital Structure (Portion of Equity) | 70% |
a. If Singa Group’s beta against the global portfolio is estimated to be 1.05, and the expected return from the global portfolio is 11%, compute the company’s (i) cost of equity, and (ii) WACC, from the global perspective.
b. Assume that 40% of Singa Group debt is denominated in foreign currencies, at fixed average interest rate of 6%. If the foreign currencies, overall, are expected to depreciate slightly at 5%, against Singapore Dollar, and the international Fisher effect does not hold, assess how this would affect the company’s WACC, and re-compute (revise) the WACC.
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