Question
Cemex, a cement company from Mexico that evaluates all business results, including financing costs, in U.S. dollars.This is done even though the firm is a
Cemex, a cement company from Mexico that evaluates all business results, including financing costs, in U.S. dollars.This is done even though the firm is a Mexican corporation; they have significant exposure to the U.S. market.They are listed on the Mexican stock exchange, but have Level III ADRs in the U.S.The company needs to borrow $100,000,000 or the foreign currency equivalent for six years.For all issues, interest is payable once per year, at the end of the year.Available alternatives are listed
.
A.Sell Japanese yen bonds at par yielding 3.65% per annum.The current exchange rate is 105.5/$, and the yen is expected to strengthen against the dollar by 1.75% per annum.
B.Sell euro-denominated bonds at par yielding 6.75% per annum.The current exchange rate is $1.1945/, and the euro is expected to weaken against the dollar by 1% per annum.
C.Sell U.S. dollar bonds at par yielding 5.5% per annum.
If the firm currently has bonds outstanding totaling $200,000,000 with an average pretax cost of debt of 6.18%.If the company's average tax rate is 28% what is the new average after-tax cost of debt?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started