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Assume that Angostura had not entered the US marketplace yet but is considering establishing both manufacturing and distribution facilities in the United States through a wholly owned subsidiary. It has approached two different investment banking advisors, Goldman Sachs and Bank of New York, for estimates of what its costs of capital would be several years into the future when it planned to list its American subsidiary on a U.S. stock exchange. Using the following assumptions by the two different advisors, calculate the prospective costs of debt, equity, and the WACC for Angostura USA.
Assumptions
Goldman Sachs
Bank of New York
Beta:
1.2
1.5
Risk-free rate of interest
3.0%
Estimate of cost of debt in US market
7.5%
7.8%
Estimate of market return, forward- looking
9.0%
12.0%
Corporate tax rate
35.0%
Proportion of debt
35%
40%
Proportion of equity
65%
60%
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