4. Suppose the following conditions prevail:

U.S. Germany

corporate income tax rate 21% 32%

corporate bond yields 4% 3%

and the expected rate of euro appreciation against the dollar is 2%/year. From the perspective of

a U.S. corporation with a German branch, identify the following costs of debt (in dollar terms):

i) The after-tax cost of dollar debt issued in the U.S.

ii) The expected after-tax cost of euro debt issued in the U.S.

iii) The expected after-tax cost of euro debt issued in Frankfurt.

5. Suppose the U.S. corporation will be financed 40% by issuing U.S. equity, 60% by issuing

bonds in the U.S. The cost of equity financing is 8%.

a) What is the weighted average cost of capital if the firm uses $ debt, given the numbers in

question 4? If it uses euro debt issued in the U.S.?

b) Should the U.S. corporation issue dollar debt, or euro debt? What factors influence its

decision?

Hi, please solve both. I have used 6 questions trying to receive help on this question. Thank you.