The dollar cost of debt for Coval Consulting, a U.S. research firm, is 7.6%. The firm faces
Question:
The dollar cost of debt for Coval Consulting, a U.S. research firm, is 7.6%. The firm faces a tax rate of 30% 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 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¥ = 0.8%, respectively. Coval 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 Coval Consulting’s after-tax cost of debt in yen? Start by finding the after-tax cost of debt in dollars and then finding the yen equivalent.
Step by Step Answer:
Corporate Finance The Core
ISBN: 9781292158334
4th Global Edition
Authors: Jonathan Berk, Peter DeMarzo