a. To calculate the weighted average cost of capital (WACC) in euros, we need to calculate the cost of debt and the cost of equity, and then calculate the weighted average of these two components.

Cost of debt = 10% Tax rate in Europe = 45% After-tax cost of debt = Cost of debt * (1 - Tax rate) = 10% * (1 - 0.45) = 5.5%

Cost of equity = 12%

Capital structure: Equity = 40% Debt = 60%

Weighted average cost of capital (WACC) = (Equity % * Cost of equity) + (Debt % * After-tax cost of debt) WACC = (0.40 * 12%) + (0.60 * 5.5%) WACC = 4.8% + 3.3% WACC = 8.1%

Therefore, the weighted average cost of capital (WACC) to IBM in euros is 8.1%.

b. To convert the WACC from euros to US dollars, we need to consider the expected inflation rates in both the United States and Europe.

Expected inflation in the United States = 3% Expected inflation in Europe = 2%

Conversion rate = (1 + Expected inflation in Europe) / (1 + Expected inflation in the United States) Conversion rate = (1 + 2%) / (1 + 3%) Conversion rate = 1.02 / 1.03 Conversion rate = 0.9903

WACC in US dollars = WACC in euros * Conversion rate WACC in US dollars = 8.1% * 0.9903 WACC in US dollars = 7.97%

Therefore, the WACC to IBM in US dollars is 7.97%.