Assuming we make an all-cash offer, we will have to do some external financing. Ive talked to our investment bankers. They say we can likely take advantage of either of the two debt issues given below. Right now, I believe we could get the German bonds swapped into dollars based on forward exchange rates that are based on differential inflation in the two countries (U.S. 3.0%, Germany 1.8%). Which debt issue would you recommend? (Assume annual coupon payment.) Please let me know if and how your answer depends on the availability of the forward rates that I mentioned.

$400 million of 20-year debentures at a coupon rate of 7.50%. These would be sold to the public at par value.

The equivalent of $400 million in German DEM-denominated (deutsche marks) debt (20-year). These bonds could be sold at par with a coupon rate of 6.50%. The current spot rate is DEM1.52 per U.S. dollar.