Foreign Exchange Risk and the Cost of Borrowing Swiss Francs.The chapter demonstrated that a firm borrowing in a foreign currency could potentially end up paying a very different effective rate of interest than what it expected. Using the same baseline values of a debt principal of

SF1.4

million, a one-year period, an initial spot rate of

SF1.4500/$,

a

4.872%

cost of debt, and a

36%

tax rate, what is the effective after-tax cost of debt for one year for a U.S. dollar-based company if the exchange rate at the end of the period was:

a.

SF1.4500/$

b.

SF1.3700/$

c.

SF1.3160/$

d.

SF1.5630/