Purchase Solution

Considerations for entering foreign markets

Not what you're looking for?

Ask Custom Question

Vale is the second largest mining company based in Brazil. Although it has recently expanded its operations in Africa, Asia, Latin America, it has not yet entered the North American market. Vale is considering investments in Minnesota, Wisconsin, and Utah through a wholly owned subsidiary. It has approached two different investment banking advisors, JP Morgan and Morgan Stanley, for estimates of what its costs of capital would be several years into the future when it plans to list its American subsidiary on the U.S. stock exchange. Using the following assumptions by the two different advisors, calculate the prospective costs of debt, equity, and WACC for Vale U.S. 

Assumptions JP Morgan Morgan Stanley
Components of beta: Β
Estimate of correlation between security and market ρjm             0.75              0.80
Estimate of standard deviation of Vale's returns σj 40.00% 35.00%
Estimate of standard deviation of market's return σm 15.00% 18.00%
Risk-free rate of interest krf 2.00% 2.00%
Estimate of Vale's cost of debt in US market kd 9.00% 10.00%
EMRP (Rm-Rf) EMRP 5.50% 5.00%
Corporate tax rate T 35.00% 35.00%
  Proportion of debt D/V 35% 40%
Proportion of equity E/V 65% 60%

Attachments
Purchase this Solution

Solution Summary

The considerations for entering foreign markets are provided. Two different advisers assumptions are provided.

Solution provided by:
Education
  • MPhil, Madurai Kamaraj University
  • MCom, Annamalai University
  • IATA, International Air Transport Association
Recent Feedback
  • "Great explanations on how the answers were obtained."
  • "Love the way she explains everything step by step."
  • "Solutions were thoroughly explained."
  • "Excellent explanations of how problems are solved"
  • "Thanks"
Purchase this Solution


Free BrainMass Quizzes
Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Learning Lean

This quiz will help you understand the basic concepts of Lean.

MS Word 2010-Tricky Features

These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.

IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)