Rm=12% € Cost of D and E higher in Thailand € . IR (US)= 8% € Rf= 5%.10 years € Speedos € NPV= $8 mn @ 25% (conservative approach) € Total risk= Unsystematic + Systematic € IR (Thai)=15%.US based roller blade manufacturer € Period of operation.

interest rate risk .debenture) .1997-98 € Recovery € Tourist1.shares . High growth potential 2. exchange rate risk € .South East Asian Financial Crisis. € Unsystematic Risk-country risk(mutual fund . Lack of competitors € Volatile Bhat (Thiland Currency ) € Systematic Risk ² equity risk . commodity risk.

5.  1. 4.Default risk reduced UnfavorableSmaller size than MNCs. 2.diversified . Favorable.won·t receive preferential treatment Higher interest rate in Thailand Translation exposure Country risk Unsystematic risk increases. 3.

8.When Beta=2. Ke= 19% € When Beta= 1. Ke= 17.6% € Expansion-> reduces systematic risk € Usage of 25% required ROR considering unsystematic risk in Thailand € .

5% 50% US debt 50% US equity 20% US debt 30% Thai debt 50% US equity 50% US equity 50% Thai debt 20%*8%= 1.4% 17.Combinations US cost of debt= 8% 50%*8%= 4% Thailand cost of debt= 15% --------------------- US cost of equity= 19% 50%*19%= 9.5% 50%*19%= 9.4% .6% 30%*15%= 4.5% 15.5% 50%*19%=9.5% 17% 40% Thai debt 60% US equity --------------------- 40%*15%= 6% 60%*19%= 11.5% Approximated WACC 13.6% --------------------- 50%*15%= 7.

5% 50%*17.56% 16.6% 50%*17.5% 50%*17.8% 14.6%= 10.56% .6% 30%*15%= 4.6%= 8.3% 40% Thai debt 60% US equity --------------------- 40%*15%= 6% 60%*17.6%= 8.Combinations US cost of debt= 8% 50%*8%= 4% Thailand cost of debt= 15% --------------------- US cost of equity= 17.8% 16.8% 50% US debt 50% US equity 20% US debt 30% Thai debt 50% US equity 50% US equity 50% Thai debt 20%*8%= 1.6%= 8.8% Approximated WACC 12.9% --------------------- 50%*15%= 7.

8% € Required rate of return= (12.8% € .5+7)%= 20.5% € Required rate of return= (13.Risk premium= 12%-5%= 7% € Lowest WACC before investing in Thailand= 13.5% € Lowest WACC after investing in Thailand= 12.8+7)%= 19.

Beta < 1 (defensive) EXCESS RETURN ON MARKET PORTFOLIO .EXCESS RETURN ON STOCK Beta > 1 (aggressive) Beta = 1 Each characteristic line has a different slope.

Q4.possibility for hedging Future depreciation->increase profit of company DisadvantageIncrease in cost of capital .Use of debt« AdvantagesHigh country risk.(10 year project and high political and currency risk) €  1.borrow dollar US market and convert it into bhatt or borrow bhatt from Thai market. 2. € Interest rate higher in Thailand than that in US € International Fisher effect is applicable € Higher cost of debt but will depriciate over the year offseated by the reduce exposure to adverse exchange rate effect.Option for Debt Financing.  1.

0286 Payments in dollar 45.Year 1 Year 2 Year 3 Payment in Thai baht 1500 B 1500 B 11500 B Forecasted exchange rate of baht 0.0294 0.1 328.9 .45 44.0303 0.

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