Cemex, a cement company from Mexico that evaluates all business results, including financing costs, in U.S. dollars.
Question:
Cemex, a cement company from Mexico that evaluates all business results, including financing costs, in U.S. dollars. This is done even though the firm is a Mexican corporation; they have significant exposure to the U.S. market. They are listed on the Mexican stock exchange, but have Level III ADRs in the U.S. The company needs to borrow $100,000,000 or the foreign currency equivalent for six years. For all issues, interest is payable once per year, at the end of the year. Available alternatives are listed.
- Sell Japanese yen bonds at par yielding 3.65% per annum. The current exchange rate is ¥105.5/$, and the yen is expected to strengthen against the dollar by 1.75% per annum.
- Sell euro-denominated bonds at par yielding 6.75% per annum. The current exchange rate is $1.1945/€, and the euro is expected to weaken against the dollar by 1% per annum.
- Sell U.S. dollar bonds at par yielding 5.5% per annum.
If the firm currently has bonds outstanding totaling $200,000,000 with an average pretax cost of debt of 6.18%. If the company's average tax rate is 28% what is the new average after-tax cost of debt?
Quantitative Analysis for Management
ISBN: 978-0132149112
11th Edition
Authors: Barry render, Ralph m. stair, Michael e. Hanna