The dollar cost of debt for Healy Consulting, a U.S. research firm, is 7.96%. The firm faces
Question:
The dollar cost of debt for Healy Consulting, a U.S. research firm, is 7.96%. The firm faces a tax rate of 40% on all income, no matter where it is earned. Managers in the firm need to know its yen cost of debt because they are considering launching a new bond issue in Tokyo to raise money for a new investment there. The risk-free interest rates on dollars and yen are r$ = 4% and r¥ = 1.4%, respectively. Healy Consulting is willing to assume that capital markets are internationally integrated and that its free cash flows are uncorrelated with the yen–dollar spot rate. What is Healy Consulting’s after-tax cost of debt in yen?
(Hint: Start by finding the after-tax cost of debt in dollars and then find the yen equivalent.)
Step by Step Answer:
Fundamentals Of Corporate Finance
ISBN: 9781292437156
5th Global Edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford