If Venerus Implements the Suggested Methodology?

If Venerus implements the suggested methodology, what would be the range of discount rates that AES would use around the world? * 12% discount rate was used for all understands * Venerus felt that this standard worked jolly well In 1990s this model of capital budgeting was exported to projects overseas * model became increasingly strained with the expansions in Brazil and Argentina * because hedging primaeval exposures such as regulatory or currency risk was not feasible * the ever-increasing complexity in the financing of international operations is another(prenominal) problem * when subsidiaries topical anesthetic currency real exchange rates depreciated, supplement at the subsidiary and holding company level effectively increased, and the subsidiaries struggled to assistant their foreign currency debt * Veneruss solution to the problem had to be consistent, transparent, and getatable As a starting point, he considered the 15 representative projects shown in Exhibit 7a and, using the financial data in Exhibit 7b * he endeavored to pull in a weighted average cost of capital (WACC) for apiece project using a standard methodology * he endeavored to derive a weighted average cost of capital (WACC) for each project using a standard methodology WACC=EVre+DVrd1-? In order to front each WACC, Venerus knew he would have to measure all of the constituent part for the 15 projects * the cost of debt * the target capital structure * the local estate tax rates * an appropriate cost of rectitude Venerus feared the use of a World CAPM might yield artificially low costs of capital.Similarly, Venerus did not advocate the use of a Local CAPM where beta measured the covariance of a projects returns with a portfolio of local equities. Countries such as Tanzania or Georgia, where AES had projects, did not have any meaningful equity markets or local benchmarks. Still, he knew he had to find a way to capture the country-specific risks in foreign markets. 1. he calculate d a cost of debt and cost of equity for each of the 15 projects using U. S. market data 2. he added the remnant between the yield on local government bonds and the yield on corresponding U. S. Treasury bonds to both the cost of debt and the cost of equity summary of WACC Calculations for AES