Question

Your firm has AUD 100 million of outstanding equity. It has also issued a 10-year bond...

Your firm has AUD 100 million of outstanding equity. It has also issued a 10-year bond in US markets with total face value equal to USD 100 million, which pays a 4% annual coupon and was recently quoted at a price of 100. Your marginal tax rate is 25%.

You observe the market information below.

AUD risk-free rate 2%

Your firm's beta 1.25

Market risk premium 4%

AUD expected inflation 1%

USD expected inflation 3%

Exchange rate 1.10 USD per AUD

Which of these answers is closest to your answer. Find the WACC.

A. 5%

B. 5.5%

C. 6%

D. 6.5%

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