urgen Knudsen has been hired to provide industry expertise to Henrik Sandell, CFA, an analyst for a pension plan managing a global large-cap fund internally. Sandell is concerned about one of the fund’s larger holdings, auto parts manufacturer Kruspa AB. Kruspa currently operates in 80 countries, with the previous year’s global revenues at €5.6 billion. Recently, Kruspa’s CFO announced plans for expansion into Trutan, a country with a developing economy. Sandell worries that this expansion will change the company’s risk profile and wonders if he should recommend a sale of the position.
|Equity risk premium, Sweden||4.82 percent|
|Risk-free rate of interest, Sweden||4.25 percent|
|Industry debt-to-equity ratio||0.3|
|Market value of Kruspa’s debt||€900 million|
|Market value of Kruspa’s equity||€2.4 billion|
|Kruspa’s equity beta||1.3|
|Kruspa’s before-tax cost of debt||9.25 percent|
|Trutan credit A2 country risk premium||1.88 percent|
|Corporate tax rate||37.5 percent|
|Interest payments each year||Level|
Using the capital asset pricing model, Kruspa’s cost of equity capital for its typical project is closest to:
- 7.62 percent.
- 10.52 percent.
- 12.40 percent
i dont get it why the answer doesnt include contry premium since this question is talking about invest in anouther country.