The U.S. risk-free rate is currently 3%. The expected U.S. market return is 10%.

Question

The U.S. risk-free rate is currently 3%. The expected U.S. market return is 10%. Solso, Inc. is considering a project that has a beta of 1.10. What is the cost of dollar-denominated equity?
Answer
A. 12.4%
B. 11.4%
C. 10.7%
D. 8.24%



A foreign project requires a negative cash outflow in foreign currency in year 0 and positive cash flows in foreign currency in years 1 through 5. The NPV for this project will be higher if the local currency ____ in year 0 and ____ in years 1 though 5.
Answer
A. depreciates; depreciates
B. depreciates; appreciates
C. appreciates; depreciates
D. appreciates; appreciates

Explanation / Answer

cost of dollar-denominated equity = 3% + 1.1*(10%-3%) =10.70% C. 10.7% B. depreciates; appreciates

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