Goodie Ltd. is an Australian firm whose operations are mainly in Japan. Most of its revenues are in Yen term. They consider issuing AUD100mil worth of debts to fund their expansion plans in the next 10 years. The firm hires Goldman Bank as their lead underwriter. Goldman Bank proposes three options.

i. Goodie can raise the capital in the domestic bond market. The coupon rate is 6.10% p.a. The coupon is paid semiannually. The bond will mature in 10 years. The underwriting fees are 0.8% of the issue size.

ii. Alternatively, the firm can tap into the Eurobond market. The Eurodollar bonds have 10 years to maturity. The annual coupon payment is slightly higher at 6.15% p.a. Macquarie has a reputation in this market, so the underwriting fees are lower at 0.75%. The current spot rate is USD0.70/AUD.

iii. Finally, Goodie can issue ten-year Samurai bonds in Japan with a coupon rate of 6.13% paid annually. The underwriting fee is 0.9%. The current spot rate is Yen120/AUD.

A) Based on the all-in cost method, which bond should Goodie choose? Hint: Use Excel or financial calculator.

B) Goodies CEO has concerns over the rising competition from Japanese local firms. Given the situation, which bond should Goodie choose and why?