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CHAPTER OVERVIEW:
I. THE COST OF EQUITY CAPITAL II. THE WEIGHTED AVERAGE COST OF CAPITAL FOR FOREIGN PROJECTS III. THE ALL-EQUITY COST OF CAPITAL FOR FOREIGN PROJECTS IV. DISCOUNT RATES V. ESTABLISHING A WORLDWIDE CAPITAL STRUCTURE
ri = r f
+ i ( r m - rf )
where ri = the equity required rate rf = the risk free return rate i= Cov(rm, ri)/ 2 rm where
k* = r f
+ *( rm - rf )
e
1 (1 t ) D / E
where
B* = the firms stock price beta D/E = the debt to equity ratio t = the firms marginal tax
1. Not diversifiable
2. Foreign projects in non-
A. MNC Advantage: