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Midland Oil is a US-based oil drilling company that is publicly traded and has estimated a dollar cost of equity of 8% for itself

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Midland Oil is a US-based oil drilling company that is publicly traded and has estimated a dollar cost of equity of 8% for itself. (The ten-year Treasury bond rate is 3.5% and the equity risk premium used by the company is 8%) The company is considering acquiring Coloil, a Colombia-based oil company, and wants to estimate the cost of equity in Colombian pesos. It has collected the following information: The Colombian government has 10-year peso-denominated bonds, trading at an interest rate of 7% and 10-year US$ denominated bonds trading at an interest rate of 5.0%. Colombia's local currency rating matches its foreign currency rating. The standard deviation of Colombian equities is 25%, whereas the standard deviation in Colombian government bond (both peso and $) is 20%. Assuming that the dollar cost of equity that Midland Oil has computed for itself is right (it reflects an appropriate beta for an oil drilling company), estimate the Colombian peso cost of equity for Coloil.