Question 5 (16 marks) Cochlear Limited is an Australian company with operations in Europe. It is planning to invest in a new research and development project in Europe. Its annual revenues in Europe is estimated to be 400 million. However, the required investment is 800 million. It is considering the following financing options.

a) Borrow the required amount by using Eurobonds denominated in euros in Germany for financing the new project. (4 marks)

b) Issue equity in the Australian market and convert the proceeds to euros. (4 marks)

c) Issue 5-year fixed rate bonds in Australia. (4 marks)

d) Issue 1-year floating rate Euro notes in Europe every year. (4 marks) Discuss the benefits and disadvantages of each of the four options above on the basis of

i) foreign exchange risk

ii) cost of financing

iii) interest rate risk.