Issue bond denominated in pound sterling

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Part A

AussiBlast, an Australian gold mining company, has several mining fields in the African countries. They decided to issue bond denominated in pound sterling to raise finance from London for one of its subsidiaries in Ghana. Discuss some reasons why AussiBlast might issue bond denominated in pound sterling?

Part B

Assume that a portfolio is 60% invested in the U.S. stocks and 40% in the rest of the world. Annualized expected returns are 7% and 9% for the U.S. stocks and the rest of the world, respectively. Using the following information, standard deviation in the U.S. stocks, σUSA = 15%; standard deviation in the rest of the world, σWORLD = 16% and the correlation between the U.S. stocks and the rest of the world, rUSA,WORLD = 0.50, calculate the risk and return of the international portfolio (must show your workings).

Part C

You are working in an MNC which is pursuing a new foreign project. Your MNC has a group-wide debt-equity ratio of 1:2, pre-tax cost of debt 8 percent, the tax rate of 30% and a cost of equity capital of 15%. However, the systematic risk of the new project is estimated to be lower than the group and hence the required return on equity is estimated to be 12% but the cost of debt capital is expected to be 10 percent (pre-tax). What is the foreign project's weighted average cost of capital (must show your workings)?

Reference no: EM133272556

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