Letter C

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/$, a 5.215% cost of debt, and a 35% tax rate, what is the effective after-tax cost of debt for one year for a U.S. dollar-based company if the exchange rate at the end of the period was: a. SF1.4500/$ b. SF1.4100/$ c. SF1.3780/$ d. SF1.5630/$ a. If the exchange rate at the end of the period was SF1.4500/$, what is the effective after-tax cost of debt? % b. If the exchange rate at the end of the period was SF1.4100/$, what is the effective after-tax cost of debt? % c. If the exchange rate at the end of the period was SF1.3780/$, what is the effective after-tax cost of debt? %