Vogl Co. is a U.S. firm that conducts major importing and exporting business in Japan, whereby all

Question:

Vogl Co. is a U.S. firm that conducts major importing and exporting business in Japan, whereby all transactions are invoiced in dollars. It obtained debt in the United States at an interest rate of 10 percent per year. The long-term risk-free rate in the United States is 8 percent. The stock market return in the United States is expected to be 14 percent annually. Vogl’s beta is 1.2. Its target is 30 percent debt and 70 percent equity. Vogl Co. is subject to a 25 percent corporate tax rate.
a. Estimate the to Vogl Co.
b. Vogl has no subsidiaries in foreign countries but plans to replace some of its dollar-denominated debt with Japanese yen–denominated debt since Japanese interest rates are low. It will obtain yen-denominated debt at an interest rate of 5 percent. It cannot effectively hedge the risk resulting from this debt because of parity conditions that make the price of derivatives contracts reflect the interest rate differential. How could Vogl Co. reduce its exposure to the risk resulting from the yen-denominated debt without moving its operations?

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Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...