Harley Davidson is considering whether to issue bonds denominated in

euros. The case suggests that this might allow the company to take

advantage of the low real rates of return in European debt markets, but there

are two complications. First, issuing debt in a currency other than the US

dollar might expose Harley$-$Davidson to exchange$-$rate risk. Second, there

are firm$-$specific and industry$-$specific factors that might also affect

borrowing rates. The case provides estimates of the yields Harley$-$Davidson

could expect for both euro$-$denominated and dollar$-$denominated issues,

along with market and peer company data. The focus in the assignment

questions below is to evaluate the desirability of the euro$-$denominated issue. Using the euro cash flows and the forecast spot rates you calculated above,

calculate the cost of funds Harley$-$Davidson would expect from the Reverse

Yankee issue by converting the euro cash flows into US dollar cash flows

and then calculating the internal rate of return of the dollar cash flows.