Sunrise Manufacturing, Inc. Sunrise Manufacturing, Inc., a U.S. multinational co

Question

Sunrise Manufacturing, Inc. Sunrise Manufacturing, Inc., a U.S. multinational company, has the following debt components in its consolidated capital section, 1. Sunrise's shareholders' equity is $45,000,000 and its finance sta estimates their cost of equity to be 19.0%. Current exchange rates are also listed in the table. Income taxes are 39% around the world after allowing or credits. Calculate Sunrise's weighted average cost of capital. Are any assumptions implicit in your calculation? What is Sunrise's weighted average cost of capital? % (Round to two decimal places.) This calculation assumes there is no expected change in the exchange rate over the life of the debt issue. Is the above statement true or false? (1) 1: Data Table (Select from the drop-down menu.) Assumption Tax ratc 25-year USS bonds 5-year USS bonds 10-year eurobonds (euros) 20-year yen bonds (yen) Before-tax cost of 25-year US$ bonds Before-tax cost of 5-year US$ bonds Before-tax cost of 10-year eurobonds Before-tax cost of 20-year yen bonds Spot rate (S/e) Spot rate (S/E) Spot rate (WS Value ) $20,000,000 $6,000,000 5,000,000 ¥950,000,000 6,0% 4.5% 55% 3.0% 1.2800 1.9100 109.00 (1) O False True.

Explanation / Answer

Statement showing WACC

Cost of debt = Interest rate(1-tax rate) Accordingly all the Kd are derieved

The sentence that exchange rate will remian constant is false.

Currency keeps on fluctuation hence it will never remain constant. However one can hedge it

Source of capital Amount in $ Weight K WACC = weight*K Equity 45000000 52.26% 19% 9.93% 25 year US bond 20000000 23.22% 3.66% 0.85% 5 year US bond 6000000 6.97% 2.75% 0.19% 10 year eurobonds(5000000*1.28) 6400000 7.43% 3.36% 0.25% 20 year Yen Bond(950000000/109) 8715596 10.12% 1.83% 0.19% Total 86115596.33 11.40%

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