A U.S. corporation is considering whether to take advantage of low Japanese interest rates, and finance some
Fantastic news! We've Found the answer you've been seeking!
Question:
a) What is the corporation's after-tax cost of dollar debt, in percent per year?
b) What is the corporation's expected after-tax cost of yen debt, in percent per year?
c) How many dollars (pre-tax) will the corporation have to pay in 5 years if it issues dollar debt?
d) How many yen (pre-tax) will the corporation have to pay in 5 years if it issues yen debt?
e) What is the break-even exchange rate in five years - i.e., the exchange rate that would make future yen obligations equal in value to future dollar obligations?
f) If the U.S. corporation assesses $/yen exchange rate volatility at 10% annualized, what is the probability that yen debt would end up being more expensive than dollar debt 5 years hence?
Related Book For
Global Marketing management
ISBN: 978-0470505748
5th edition
Authors: Masaaki Kotabe, Kristiaan Helsen
Posted Date: