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Cost of capital

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A firm is applying capital budgeting to a foreign investment opportunity in England. The risk-free rate in England is 3.83 percent and the risk-free rate in the United States is 3.56 percent. Regressing the firmâ??s return against the FTSI results in a beta of 1.20. The historical return on the FTSI is 9 percent. Calculate the cost of capital to evaluate the project if the cash flows are in pounds and hedged against currency risk. Assume all equity financing.

Please show calculations.

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The cost of capital is determined.

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