Question

You would like to estimate the WACC for a new business in Colombia. You are given the following US industry data from last year:

	Bebt ($mm)	Equity ($mm)	Equity Beta	Tax Rate
A	33	28	1,2	20%
B	69	73	1,1	30%
C	36	87	0,8	35%

The new business will be 40% financed by debt and you estimate the cost of debt will be 12%. You also estimate a tax rate of 30%. The S&P 500 index return is 8% (a.c.a.) and the risk-free rate is 4% (a.c.a). If the expected inflation in the US is 2%, the expected inflation in Colombia is 3,3% and Colombia's country risk premium is 1,97%, what is approximately the new business WACC? (Use Hamada formula)

A. 10%

B. 12%

C. 15%

D. 17%

Answer 1