Carazona, Inc., is a U.S. firm that has a large subsidiary in Indonesia.

It wants to finance the subsidiarys operations in Indonesia. However, the cost of debt is currently about 30 percent there for firms like Carazona or government agencies that have a very strong credit rating. A consultant suggests to Carazona that it should use equity financing there to avoid the high-interest expense. He suggests that since Carazonas cost of equity in the United States is about 14 percent, the Indonesian investors should be satisfied with a return of about 14 percent as well. Clearly explain why the consultants advice is not logical. That is, explain why Carazonas cost of equity in Indonesia would not be less than Carazonas cost of debt in Indonesia.