Question

Singa Group is a Singaporean multinational companies. Below are the pertaining informations of the company. Estimated...

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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answered by: anonymous
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