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Genedak-Hogan Cost of Equity. Use the table in the popup window, to answer the problem. Genedak-Hogan (G-H) is an American co.x i Data Table (Click on the icon to import the table into a spreadsheet.) Symbol Pjm Before Diversification 0.92 After DiveWhat is Genedak-Hogans cost of equity before international diversification of its operations without the hypothetical additi

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Answer #1

Cost of Equity is given by

Es = Rf + Bs * (Rm - Rf) + RPM

Where, Es - Cost of Equity

Rf - Risk free return in the market (Government bond)

Bs - Sensitivity to market risk

(Rm - Rf) - Risk premium of market assets over risk free assets

RPM - Additional equity risk premium for internationalisation

1) Genedak-Hogan's cost of Equity before international diversification without an additional risk premium

Es = 3.5 + 0.92 * (5.8) + 0.0 = 8.836

2) Genedak-Hogan's cost of Equity before international diversification with an additional risk premium

Es = 3.5 + 0.92 * (5.8) + 0.0 = 8.836

3) Genedak-Hogan's cost of Equity after international diversification without an additional risk premium

Es = 3.5 + 0.71 * (5.8) + 0.0  = 7.618

4) Genedak-Hogan's cost of Equity after international diversification with an additional risk premium

Es = 3.5 + 0.71 * (5.8) + 3.5 = 11.118

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